8uckley CaplLal arLners ulsclalmer DISCLAIMER IMPORTANT NOTICE
The information contained in this presentation The Road Less Traveled: Special Situations Investing is highly confidential and is being provided for information purposes only to a limited number of financially sophisticated persons who have expressed an interest in the matters described herein. The Presentation does not constitute an offer to sell, or a solicitation of an offer to purchase, any securities. Any such offer or solicitation will be made in accordance with applicable securities laws.
The Presentation is being provided on a confidential basis solely to those persons to whom this Presentation may be lawfully provided. It is not to be reproduced or distributed to any other persons (other than professional advisors of the persons receiving these materials). It is intended solely for the use of the persons to whom it has been delivered and may not be used for any other purpose. Any reproduction of the Presentation in whole or in part, or the disclosure of its contents, without the express prior consent of Buckley Capital Management LLC is prohibited.
No representation or warranty (express or implied) is made or can be given with respect to the accuracy or completeness of the information in the Presentation. Certain information in the Presentation constitute forward-looking statements about potential future results. Those results may not be achieved, due to implementation lag, other timing factors, portfolio management decision-making, economic or market conditions or other unanticipated factors. Nothing contained herein shall be relied upon as a promise or representation whether as to past or future performance or otherwise.
The views, opinions, and assumptions expressed in this presentation are as of April 2 nd , 2014, are subject to change without notice, may not come to pass and do not represent a recommendation or offer of any particular security, strategy or investment.
The Presentation does not purport to contain all of the information that may be required to evaluate the matters discussed therein. It is not intended to be a risk disclosure document. Further, the Presentation is not intended to provide recommendations, and should not be relied upon for tax, accounting, legal or business advice. The persons to whom this document has been delivered are encouraged to ask questions of and receive answers from the [general partners] of the Company and to obtain any additional information they deem necessary concerning the matters described herein.
None of the information contained herein has been filed or will be filed with the Securities and Exchange Commission, any regulator under any state securities laws or any other governmental or self-regulatory authority. No governmental authority has passed or will pass on the merits of this offering or the adequacy of this document. Any representation to the contrary is unlawful
3/16/14 value lnvesung Congress 2 lnLroducuon Well-deslgned screens are a powerful Lool Lo ald value lnvesLors ln Lhelr search for bargalns Cen allow you Lo ldenufy opporLunlues overlooked by Lhe resL of Lhe markeL 8y spomng, researchlng, and lnvesung ln Lhese before oLhers, you can beaL Lhe markeL subsLanually over ume 1oday l wlll dlscuss companles l currenLly own or prevlously owned ln order Lo hlghllghL Lhe lnvesLmenL opporLunlLy and how l dlscovered lL (keep ln mlnd l dld noL always Lrade Lhe companles as well as Lhe charLs lndlcaLe) 3/16/14 value lnvesung Congress 3 PlsLory of 1echnology use lnvesung has evolved greaLly over Lhe years 1930s: value lnvesung ls born as Lhe Craham-newman parLnershlp buys neL-neLs" 1930s-70s: Warren 8ueu conunues Lhe neL-neL" approach, uslng Moody's sLock gulde Lo manually nd opporLunlues 1962: CompusLaL launches rsL nanclal daLa source 1996: all SLC llngs become avallable onllne LaLe 1990s: arrlval of lnLerneL provldes wldespread access Lo free nanclal daLa 1oday: lmmedlaLe lnformauon and advanced screenlng capablllues make ndlng ldeas easler Lhan ever before 1okloq oJvootoqe of tecbooloqlcol ptoqtess ls oow o ctlucol tool to qololoq oo eJqe ovet tbe motket 3/16/14 value lnvesung Congress 4 Speclal SlLuauon Screens Cne parucularly useful famlly of screens are speclal slLuauon screens Cenerally search for a parucular evenL raLher Lhan on Lradluonal valuauon meLrlcs 1echnologlcal advances have greaLly reduced Lhe legwork Lhey lnvolve Source: CaplLal lC 3/16/14 value lnvesung Congress 3 l Lhlnk Lhese Lypes of screens can be parucularly useful Loday wlLh Lhe markeL near all-ume hlghs and many sLocks approachlng falr value
Source: lacLseL 3/16/14 value lnvesung Congress 6 ldea Cenerauon !oel Creenblau: Speclal SlLuauon Curu !oel Creenblau Co-founder of Lhe value lnvesLor's Club and a pasL conference speaker Compounded caplLal aL 30 per year from 1983-1994 largely by lnvesung ln speclal slLuauons lf yoo speoJ yoot eoetqles lookloq fot ooJ ooolyzloq sltoouoos oot closely followeJ by otbet lofotmeJ lovestots, yoot cbooce of foJloq botqolos qteotly locteoses! #$% #&'() '* +,(-./0 1$,*% ,22,&13/'.%* 3/16/14 value lnvesung Congress 7 Source: ?ou Can 8e A SLock MarkeL Cenlus Several Lypes of speclal slLuauon opporLunlues (such as splnos and rlghLs oerlngs) are dlscussed ln !oel's excellenL book ?ou Can 8e a SLock MarkeL Cenlus" l personally Lry Lo follow all speclal slLuauons !"#! % !"&'( )&** +&,*- #! *,#.! /', 0//- &'1,.!2,'! /33/4!5'&!+ 3,4 +,#4 1oday l wlll dlscuss a varleLy of addluonal sources of opporLunlLy wlLhln Lhe speclal slLuauon space - SLraLeglc AlLernauves/M&A - AcuvlsL lnvesLors - lnslder 8uylng - 13 u/C llllngs
3/17/14 value lnvesung Congress 8 - value lnvesLor's Club webslLe - 8uybacks - n1 10 C/k - uuLch 1enders - uellsungs 1oday's CpporLunlues 6789%:; 6%<=:<%>? 69@88?%?A >B8@B%8C Source: lacLseL 3/16/14 value lnvesung Congress 9 Source: leedly 6<@:<8A%9 :;<8@?:<%B86 :?D EF: 3/16/14 value lnvesung Congress 10 SLraLeglc AlLernauves and M&A AnnouncemenL LhaL a company ls conslderlng or acuvely seeklng Lo make a ma[or change ln Lhelr buslness Selllng a dlvlslon Selllng enure company lnformauon sources: CaplLal lC, 8loomberg, lacLseL, and Coogle AlerLs 3/16/14 value lnvesung Congress 11 Source: CaplLal lC Source: Coogle 3/16/14 value lnvesung Congress 12 Lxamples Case SLudy: Mlndspeed Mlndspeed 1echnologles (MSu) ueslgner and developer of communlcauon semlconducLor soluuons Announced ln Aprll 2013 LhaL Lhey had hlred a nanclal advlsor Lo asslsL ln a revlew of sLraLeglc alLernauves ManagemenL even dlsclosed LhaL Lhey had been approached by poLenual buyers lnLrlnslc value was $3.00+/share MarkeL Cap (M): $119.4 Shares CuLsLandlng (M): 43.2 3/16/14 value lnvesung Congress 13 SLraLeglc AlLernauves Case SLudy 1hls lnformauon was avallable nearly slx monLhs ln advance, glvlng people plenLy of ume Lo nd and research Lhe opporLunlLy Source: CaplLal lC 3/16/14 value lnvesung Congress 14 8esulL Mlndspeed was boughL ouL ln november aL nearly a 70 premlum Lo Lhe prevlous closlng prlce Source: Coogle llnance 3/16/14 value lnvesung Congress 13 :9<%B%6< %?B86<>@6 3/16/14 value lnvesung Congress 16 AcuvlsL lnvesLors use Lhelr equlLy ownershlp of a corporauon Lo puL publlc pressure on managemenL Cen propose speclc suggesuons for value creauon or requesL a seaL on Lhe company's 8oard of ulrecLors 1helr lnuence can be a caLalysL for company acuons LhaL unlock subsLanual value 3/16/14 value lnvesung Congress 17 Pow 1o llnd CpporLunlues lnformauon sources: CaplLal lC, 8loomberg, lacLseL, and Coogle AlerLs Source: Coogle 3/16/14 value lnvesung Congress 18 Case SLudy: xyraLex ln CcLober 2012, 8aker SLreeL lnlually led a 13u dlscloslng a x81x posluon (Lhen aL 14) aL ad[usLed $6.30/share 1he followlng !anuary, Lhey led anoLher 13u LhaL showed Lhey now owned 23 of x81x shares Also senL a publlc leuer wlLh Lhls llng Lo Lhe 8oard of ulrecLors LhaL made Lhe case for why Lhe company's sLock was slgnlcanLly undervalued, and suggesLed several alLernauves Lo recufy Lhe slLuauon MarkeL Cap (M): $230 /18v: 0.7 Shares CuLsLandlng (M): 27.7 Source: SLC.gov 3/16/14 value lnvesung Congress 19 AcuvlsL Case SLudy ln Aprll of 2013, 8aker SLreeL was granLed Lwo seaLs on Lhe x81x board ShorLly aer, Lhe company sLaLed ln a llng LhaL lL had formed a SLraLeglc Commluee Lo evaluaLe posslble alLernauves 1bos, tbls oppottoolty coolJ bove beeo foooJ tbtooqb o 1J u/C scteeo, o sttoteqlc oltetoouves scteeo, ot oo ocuvlst scteeo 3/16/14 value lnvesung Congress 20 8esulL 8esulL: ln uecember 2013, less Lhan a year from Lhe lnlual leuer, xyraLex was acqulred aL a roughly 30 premlum Lo lLs lasL closlng prlce lncludlng Lhe speclal dlvldend pald aL Lhe end of 2012, Lhe LoLal shareholder reLurn was over 100 ln [usL over a year Source: Coogle llnance 3/16/14 value lnvesung Congress 21 %?6%D8@ G=H%?A 3/16/14 value lnvesung Congress 22 lnslder 8uylng When lnslders (generally Lhe mosL knowledgeable people abouL a glven company) acqulre sLock, lL can be a bulllsh slgn lndlcaLes Lhey belleve Lhe sLock Lo be undervalued Acuons speak louder Lhan words- many managemenL Leams LouL Lhelr company, buL fewer are wllllng Lo rlsk Lhelr own money on lL lf you nd a hlgh quallLy company, lnslder buylng ls a sLrong slgnal LhaL Lhe currenL prlce ls auracuve 3/16/14 value lnvesung Congress 23 Pow 1o llnd Senlor managemenL ls requlred Lo reporL all Lransacuons Lo Lhe SLC (lorm 4) lnformauon sources: lnslderscore.com. lnsldercow.com, secform4.com, sec.gov 8SS feed, CaplLal lC, 8loomberg, lacLseL, and Coogle AlerLs ltee foooce websltes (socb os oboo lloooce) olso ptovlJe tbls lofotmouoo, bot tbey ote qeoetolly less telloble 3/16/14 value lnvesung Congress 24 Source: SLC.gov Source: lnslderscore.com 3/16/14 value lnvesung Congress 23 Lxamples Case SLudy: 8adlanL Loglsucs ln november 2012, Lhe CLC of LransporLauon servlces company 8adlanL Loglsucs (8LC1), 8ohn Craln, led a lorm 4 dlscloslng Lhe purchase of addluonal shares of sLock noLable because Lhe sLock was near mulu-year lows 8y buylng aggresslvely, he lndlcaLed hls falLh ln Lhe company's fuLure A buyback (anoLher useful slgnal dlscussed laLer) was also announced around Lhls ume MarkeL Cap (M): $43.7 Lv/lCl: 8.3 Shares CuLsLandlng (M): 36 Source: SLCform4.com 8LC1 lnslder 8uylng PlsLory lurLhermore, Craln had a hlsLory of maklng savvy and opporLunlsuc purchases Also purchased when sLock was near all-ume lows ln 2009 and 2010 Source: SLCform4.com 3/16/14 value lnvesung Congress 27 2009 lnslder urchases and 8esulLs WlLhln monLhs of hls 2009/2010 purchaess, 8LC1 was a 4-bagger Anyone who recognlzed Lhls would have vlewed hls november 2012 buylng as a very bulllsh slgnal Source: lacLseL 3/16/14 value lnvesung Congress 28 8esulLs: Second 1lme Around 8esulL: anyone who recognlzed Lhe dlp as a buylng opporLunlLy has been handsomely rewarded over Lhe pasL 17 monLhs Source: Coogle llnance 3/16/14 value lnvesung Congress 29 PlsLory 8epeaLs lLself 1wo blLes aL Lhe apple Source: lacLseL 3/16/14 value lnvesung Congress 30 IJ DKA L%;%?A6 3/16/14 value lnvesung Congress 31 13 u/C llllngs SLC llng LhaL requlres reporung of ownershlp changes by anyone who holds more Lhan 3 of a publlcly-Lraded securlLy 1racklng Lhese llngs can alerL you when smarL shareholders nd a company auracuve enough Lo Lake a subsLanual sLake ln lL 3/16/14 value lnvesung Congress 32 Pow 1o llnd 1hem lnformauon sources: lnslderscore.com, CaplLal lC, 8loomberg, lacLseL, SLC.gov 8SS feed, Coogle AlerLs Source: lnslderscore.com value lnvesung Congress 33 uullzlng 13u/C llllngs Lo ?our AdvanLage Cnce you see a shareholder wlLh a sLrong Lrack record Laklng a 3+ posluon, lL's oen worLh spendlng some ume undersLandlng whaL Lhe lnvesLmenL Lhesls ls uo your own work: everyone ls wrong aL umes, lf you're noL comforLable wlLh Lhe slLuauon [usL walL for Lhe nexL opporLunlLy 1here are no called sLrlkes on Wall SLreeL" 3/16/14 value lnvesung Congress 34 Case SLudy: SLarLek SLarLek, lnc. (S81) rovlder of buslness process ouLsourclng servlces ln March 2012, a 13u llng lndlcaLed LhaL Lhe rlveL lund had Laken a 19 sLake ln Lhe company 8oseJ oo ltlvets sttooq ttock tecotJ, lt moJe seose fot loJlvlJools to tty to ooJetstooJ tbelt teosooloq ooJ see lf tbey oqteeJ MarkeL Cap (M): $33.8 Lv/lCl: n/a Shares CuLsLandlng (M): 13.2 11M 8evenues (M): $220M L8l1uA Margln 8 Source: SLC.gov 3/16/14 value lnvesung Congress 33 A very Cheap 8uslness lL was qulckly apparenL LhaL Lhe buslness was lndeed very cheap Lv/11M normallzed L8l1uA* = 1.4 S81 was also Lradlng well below Langlble book value (0.3x), provldlng subsLanual downslde proLecuon and mlnlmlzlng Lhe rlsk of permanenL caplLal loss 3/16/14 value lnvesung Congress 36 *normallzed L8l1uA based o 8 L8l1uA marglns 8esulL 8esulL: anyone who Look Lhe ume Lo undersLand Lhe slLuauon was rlchly rewarded S81 has more Lhan Lrlpled slnce Lhe llng daLe 1be stock coolJ bove olso beeo foooJ by ooyooe toooloq tbe loslJet boyloq scteeos JlscosseJ eotllet, os tbe 5k1 cO wos olso boyloq otoooJ tbe some ume Source: Coogle llnance 3/16/14 value lnvesung Congress 37 B:;=8 %?B86<>@M6 9;=G C8G6%<8 3/16/14 value lnvesung Congress 38 value lnvesLor's Club webslLe lnvesLmenL webslLe where hlgh-quallLy value and speclal slLuauon ldeas are shared on a dally basls (hup://www.valuelnvesLorsclub.com/value2/) lL requlres a membershlp, buL guesLs can access all ldeas 43 days aer Lhelr lnlual posung daLe Many Lheses remaln fully lnLacL even aer Lhls delay lor example, Mlndspeed (whlch l myself found on vlC) could have been seen and proLed from by a guesL 3/16/14 39 G=HG:9N 3/16/14 value lnvesung Congress 40 8uyback Cccurs when a company decldes Lo repurchase lLs own shares on Lhe open markeL Llke lnslder buylng, lL oen lndlcaLes LhaL managemenL belleves Lhe sLock Lo be undervalued 3/16/14 value lnvesung Congress 41 Pow 1o llnd lnformauon sources: CaplLal lC, 8loomberg, lacLseL, and Coogle AlerLs 3/16/14 value lnvesung Congress 42 compooles osoolly lssoe o ptess teleose ofet tbe 8ootJ opptoves o sbote tepotcbose ptoqtom, so o oews seotcb wlll olso toto op mooy televoot tesolts Source: lacLseL Case SLudy: lranklln Covey ln !une 2012, Lralnlng and consulung servlces provlder lranklln Covey (lC) lnluaLed a $10 M buyback lnexpenslve sLock prlce (abouL 8.3x cash ow for a growlng, hlgh quallLy buslness) MarkeL Cap (M): $140.3 Lv/lCl: 12.8 Shares CuLsLandlng (M): 13.6 3/16/14 value lnvesung Congress 43 8esulL 8esulL: Lhe comblnauon of sLrong execuuon (leadlng Lo lncreased lnvesLor demand) and fewer shares ouLsLandlng (reduced supply) have had a very favorable eecL on Lhe sLock prlce - a roughly 133 galn Source: Coogle llnance 3/16/14 value lnvesung Congress 44 ?< IOPQKN 3/16/14 value lnvesung Congress 43 n1 10-C/k llled when a company cannoL submlL lLs requlred quarLerly or annual reporL by Lhe SLC's deadllne ln a umely manner 1hls dlsrupuon can lnduce a shorL-Lerm markeL panlc LhaL can provlde bargaln opporLunlues for value lnvesLors lmporLanL LhaL Lhe resLaLemenL does noL maLerlally lmpacL Lhe lnLrlnslc value of Lhe buslness 3/16/14 value lnvesung Congress 46 Pow 1o llnd Source: SLC.gov 3/16/14 value lnvesung Congress 47 lnformauon sources: sec.gov 8SS feed, CaplLal lC, 8loomberg, lacLseL, and Coogle AlerLs Case SLudy: ulllgenL 8oard Member Servlces ulllgenL 8oard Member Servlces (ulL nZ) 8oard communlcauon Lool provlder Lradlng ln new Zealand (Lhough also reglsLered wlLh SLC because managemenL ls based ln Lhe uS) Mlsclassled Lhe umlng of revenue recognluon leadlng Lo a resLaung of nanclals 1hls was rsL announced ln AugusL 2013 Was lnlually supposed Lo be compleLed ln mld-uecember 2013, buL laLer announced LhaL Lhls would be delayed due Lo Lhe complexlues of Lhe process Announced free cash ow would noL change MarkeL Cap (M uSu): $483.1 Lv/lCl: 14.3 Shares CuLsLandlng (M): 122.3 3/16/14 value lnvesung Congress 48 8esulLs of lnablllLy Lo llle on 1lme As a resulL, ulL dropped nearly 30 Source: 8loomberg 3/16/14 value lnvesung Congress 49 Sello ls Cverdone - A 8ally lollows As oen occurs, Lhe sello proved overdone and ulL rallled sLrongly soon aer Source: 8loomberg 3/16/14 value lnvesung Congress 30 D=<9R <8?D8@ 3/16/14 value lnvesung Congress 31 uuLch 1ender Speclallzed Lype of buyback Company specles Lhe prlce range aL whlch Lhey are wllllng Lo repurchase shares Shareholders are Lhen lnvlLed Lo Lender Lhelr sLock, lf deslred, aL any prlce wlLhln Lhe range Wlll Lhen buy sLock aL lowesL prlce LhaL allows rm Lo Lhelr deslred share quanuLy 3/16/14 value lnvesung Congress 32 Pow 1o llnd lnformauon sources: CaplLal lC, 8loomberg, lacLseL, and Coogle AlerLs Source: Coogle 3/16/14 value lnvesung Congress 33 Case SLudy: 1ucows 1ucows (1Cx) Canadlan lnLerneL servlces company wlLh a rapldly growlng and valuable hldden asseL called 1lng Whlle Lhe company dld noL look lncredlbly cheap on an Lv/lCl basls, lL was very cheap because of Lhe value of 1lng Pave successfully execuLed several uuLch 1ender oers ln recenL years ln november 2012, 1Cx announced a Lender Lo repurchase up Lo 6.3 M shares ln Lhe end, Lhe company boughL back over 9 of Lhelr shares ouLsLandlng 1he move was parucularly accreuve because 1Cx purchased Lhem aL a 7 dlscounL Lo Lhelr currenL markeL value MarkeL Cap (M): $61.3 Lv/lCl: 12.9 Shares CuLsLandlng (M): 11.1 3/16/14 value lnvesung Congress 34 8esulL 8esulL: smarL caplLal allocauon and Lhe markeL's reallzauon of Lhe value ln 1lng has helped 1Cx more Lhan double from Lhe daLe Lhe Lender oer was announced Source: Coogle llnance 3/16/14 value lnvesung Congress 33 D8;%6<%?A6 3/16/14 value lnvesung Congress 36 uellsungs Cccurs when company ls removed from Lhe exchange on whlch Lhey were prevlously Lradlng noL ln compllance wlLh lndex llsung requlremenLs Cen causes Lhe markeL Lo fear a serlous problem aL Lhe company, as well as forced selllng by lndex funds and sLrlcL-mandaLe muLual funds lnformauon sources: sec.gov 8SS feed, CaplLal lC, 8loomberg, lacLseL, and Coogle AlerLs 5ell-o[s fot tecbolcol teosoos (oot bosloess teloteJ) ofeo cteote excelleot boyloq oppottoolues 3/17/14 value lnvesung Congress 37 A CurrenL CpporLunlLy: Avld 1echnology Avld 1echnology (Avlu) rovlder of dlglLal medla conLenL creauon soluuons lncorrecLly accounLed for cerLaln soware revenue componenLs, prompung an accounung resLaLemenL Pave noL reporLed nanclal resulLs slnce Lhe 3 rd quarLer of 2012 lorced Lo dellsL from Lhe nASuAC MarkeL Cap (M): $263 Lv/lCl: 8.8 Shares CuLsLandlng (M): 38.9 3/16/14 value lnvesung Congress 38 1he CpporLunlLy resenLs lLself Company's ln Lhe dark" sLaLus, coupled wlLh an audlLor change and compleuon delay announcemenL, led Lo a 40 sell-o early Lhls year 1he day before Lhe dellsung, Lhe sLock wenL from $6.80 Lo $4.93 for non-fundamenLal reasons Many funds cannoL own a plnk sheeL sLock, and so are forced Lo sell regardless of prlce Source: Coogle llnance 3/16/14 value lnvesung Congress 39 1he 8oad Less 1raveled Whlle mosL lnvesLors avold companles LhaL do noL le Lhelr nanclal sLaLemenLs (whlch ls why we follow Lhem), a close look uncovered a poLenually auracuve slLuauon 8uslness wlLh hlgh barrlers Lo enLry lree cash ow posluve Secular Lallwlnds Auracuve valuauon
3/16/14 value lnvesung Congress 60 we tblok tbls ls oo ooJetvoloeJ speclol sltoouoo oppottoolty Avld 1echnology - 1he 8uslness 8uslness wlLh hlgh barrlers Lo enLry Avlu's hlgh-quallLy vldeo edlung soware ls hlghly regarded and wldely used by edlung professlonals Was used ln Lhe edlung of a number of famous lms (such as Lhe lotJ of tbe kloqs), as well as by mosL academy award nomlnees 1he complexlLy of Lhe soware and large quanuues of people lnvolved ln Lhe edlung process make swlLchlng cosLs hlgh 3/16/14 value lnvesung Congress 61 lo sbott, Avlu ls tbe Jomlooot ployet lo o vety outocuve olcbe umng Lhe leces 1ogeLher lnvesLors have enough lnformauon from Lhe 8-k llngs Lo bulld a model desplLe noL havlng currenL nanclals lree cash ow posluve Cash ow generauon masked by cosLs assoclaLed wlLh ongolng accounung resLaLemenL LsumaLes based on managemenL's commenLs lmply a cosL of around $8-12 M per quarLer Company has also esumaLed LhaL Lhey've burned $22-24 M ln cash over Lhe pasL year Applylng Lhls burn raLe Lo Lhe annual resLaLemenL cosL ylelds posluve lCl 3/16/14 value lnvesung Congress 62 ltovlJes compellloq evlJeoce ooJetlyloq bosloess bos temoloeJ sttooq omlJ cotteot totmoll 8uy 8efore Lhe Cycle 8eglns Secular Lallwlnds Arrlval of 4k (ulLra Pu) Lelevlslon seLs should be Lhe caLalysL for Lhe nexL cycle of Lelevlslon upgrades CeLs Lhe name '4k' from lLs resoluuon, compared Lo Lhe currenL 1080 sLandard new sLandard for Lelevlslon wlll ln Lurn creaLe new sLandards for Lhe quallLy of complemenLary lndusLrles such as Avlu's 3/16/14 value lnvesung Congress 63 1bls Jyoomlc sboolJ Jtlve tbe oext toooJ of looovouoo wltblo Avlus ptoJoct lloe ooJ tepolte costomets to opqtoJe to keep op wltb ooe oootbet 4k - 1he nexL lndusLry Cycle 4k Adopuon romlnenL 1v hardware provlders are already sLarung Lo roll ouL 4k producLs AL Lhls year's Consumer LlecLronlcs Show, nearly every ma[or manufacLurer announced a 4k dlsplay for lmmlnenL release AlLernauve enLerLalnmenL opuons are followlng sulL neullx ls shooung Lhe nexL season of lLs hlL show Pouse of Cards" ln 4k 3/16/14 value lnvesung Congress 64 Cheap valuauon MeLrlcs Auracuve valuauon meLrlcs 0.37x Lv/Sales 1.31x malnLenance revenues 0.64x Lv/normallzed gross margln 10x Lv/normallzed free cash ow 3/16/14 value lnvesung Congress 63 ocb ls sobstoouolly below lts set of compotoble compooles uownslde roLecuon WhaL's lL worLh? SubsLanual downslde proLecuon uslng a conservauve 3 operaung margln and 10x lCl muluple, we Lhlnk Lhe sLock ls worLh aL leasL $7 per share (roughly Lhe currenL prlce) 3/16/14 value lnvesung Congress 66 11M 8evenue 363 x CperaLlng Margln 3 L8l1 28.3 -lnLeresL expense 1.0 -Laxes 2.0 neL lncome 23.3 +u&A 30 -Capex 28 normallzed lCl 27.4 - Shares CuLsLandlng 39 lCl per Share 0.70 x MulLlple 10 value per Share 7.03 Ao loJostty leoJloq sofwote ptovlJet wltb 55-60X qtoss motqlos sboolJ eoslly be oble to ouolo tbls opetouoq motqlo lo o ootmollzeJ eovltoomeot oLenual upslde Powever, peer companles have double-dlglL operaung marglns and we see no sLrucLural reason why Avlu shouldn'L have Lhe same lf we assume lL can achleve a 10 operaung margln, shares would be worLh nearly $14 WlLh revenue growLh, Avld could earn over $2/share We agaln conservauvely assume an lCl muluple of 10x 3/16/14 value lnvesung Congress 67 11M 8evenue 363 x CperaLlng Margln 10 L8l1 36.3 -lnLeresL expense 1.3 -Laxes 3.0 neL lncome 32.0 +u&A 30 -Capex 28 normallzed lCl 34.6 - Shares CuLsLandlng 39 lCl per Share 1.40 x MulLlple 10 value per Share 14.00 1bls lmplleJ Avlu woolJ be oboot o Jooble ftom tbe cotteot ptlce of otoooJ 56.80 8uyouL CandldaLe Avlu's susLalnable compeuuve advanLages should also make lL a poLenually lnLeresung LargeL for an acqulrer 1he company lnsuLuLed a rlghLs oerlng ln !anuary LhaL we Lhlnk may have been ln regards Lo a poLenual Lakeover oer 8elden ls maklng acqulsluons ln Lhe lndusLry 3/16/14 value lnvesung Congress 68 1be klqbts wlll oot pteveot o tokeovet of tbe compooy. nowevet, tbe klqbts moy coose sobstoouol Jllouoo to o petsoo ot qtoop tbot ocpoltes 15X ot mote of tbe commoo 5tock ooless tbe klqbts ote ftst teJeemeJ by tbe 8ootJ of ultectots of tbe compooy. PlsLory Cen 8epeaLs lLself A cycllcal buslness, buL buylng durlng cycle upswlngs has hlsLorlcally been very proLable 3/16/14 value lnvesung Congress 69 1be lock of foooclols bos cooseJ o posluoo of moxlmom pesslmlsm, bot we tblok oo lofecuoo polot ls opptoocbloq sooo 8eglnnlng of Pu cycle 8eglnnlng of 4k cycle? 1hank ?ou