Morsetone: LBO & Strategic Development

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Strategic Approach & Development for Asian market LBO.

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Morsetone: LBO & Strategic Development

  1. 1. PROJECT LEVER October 21, 2009 CONFIDENTIAL 0
  2. 2. TABLE OF CONTENTS 1. Project Summary 2. Industry Trends & Overview 3. Acquisition Target Overview 4. Leveraged Buyout 5. Creation of Settlement & Clearinghouse 6. Appendix CONFIDENTIAL 1
  3. 3. 1.0 PROJECT SUMMARY CONFIDENTIAL 2
  4. 4. 1. Project Summary STRATEGY EXECUTION METHODOLOGY Telcoware establishes an LBO: Source of capital secured by Identify technologies anchor for market expansion debt/cash flow rich stable business model Embedding best core Expansion capital from LBO, debt service Interlink technologies technology into the from consistent cash flow and customer customer base expansion Interlink SS7 signaling and Next generation network S&C Establish Asian S&C core network components standard via partnership with 3GPP, based on standards Wimax Forum, and Asian carriers Hypothesis: We strongly believe Telcowareʼs technology, and stable and predictable cash flow streams is central to the creation of a next generation Asian Settlement & Clearinghouse. CONFIDENTIAL 3
  5. 5. 1.1 Financing Strategy Debt Repayment Initial payment from Telcoware cash reserve; Reduce subsequent debt via Telcoware cash flow; Retire debt in 2015 LBO IPO value Source of Capital Fund Stable Cash Flow 3x current Debt (Privatization) market value Fund Settlement & Spin-off Clearinghouse $120M Source of capital drives financing strategy - managing and servicing debt requires a stable cash flow operation to satisfy debt obligations, and build an S&C business. CONFIDENTIAL 4
  6. 6. 1.2 Phase One: Present - LBO completion • Due diligence and LBO Preparation • Identify LBO candidate - identified (Telcoware, LTD.) • Financial due diligence • Investment banking and LBO advisor selection • Tender offer negotiation • Market signaling to control stock price manipulation • Morestone Management team assembled • CEO - John Shin • CFO - Identified • Executive VP, Sales and Marketing - Identified • Managing Director, Korean operations - Identified • Finalize financing with Zenith Holdings • Secure Senior debt to be pledged for LBO in escrow account • Fund $8.5M in bridge capital for Morestone working capital CONFIDENTIAL 5
  7. 7. 1.3 Phase Two: Synergies & Refocusing on Growth • Management reorganization at Telcoware, LTD. • Current CEO retained as ʻAdvisor to the Companyʼ • Assistant Managing Directors are redundant • Replace with additional Sales and Marketing personnel • Accelerate global marketing campaign for existing products are services • Refocus R&D spending • Eliminate Wibro product development • Replace with LTE product engineering • Reduce non-core R&D initiatives and programs • Improve year-over-year revenue growth to 30% • Expand beyond Korean market • Focus on high-growth Asian markets (e.g., China, India, and developing Asian countries) • Improve operational efficiencies • Gross margin enhancement via optimized procurement of subcomponents • Divest non-core assets CONFIDENTIAL 6
  8. 8. 1.3 Phase Two: Leveraging core for future Spin-off • Privatize Telcoware, LTD. • Eliminate public disclosure requirements • Focus on long-term goals instead of quarterly results • Reposition for IPO by 2017 • Incubate Settlement & Clearing division • 3GPP and IEEE standardization participation • IPv6 and SS7 signaling engineering • Embed Telcowareʼs core technologies • At IPO, spin-off Settlement & Clearing division • By 2017, Morsetone estimates that S&C will generate in excess of $50M in EBITDA • S&C division will become the standard for next generation roaming remediation entity in the Asian marketplace CONFIDENTIAL 7
  9. 9. 1.4 Valuation Analysis Based on DCF and APV valuation methodologies, Telcowareʼs intrinsic value is far above its current market capitalization, thus a 25% premium to the share price is still below its intrinsic value Telcoware Valuation Analysis (in $000) Current LBO Premium Market Cap $45,021 $78,653 $33,632 Discounted Cash Flow (DCF) $57,286 $128,870 $71,584 Adjusted Present Value (APV) $56,603 $130,491 $73,888 Premium/(Discount) to Intrinsic Value -20.81% -39.60% CONFIDENTIAL 8
  10. 10. 1.5 Sources & Uses Sources Uses Bridge Financing $8,500,000 Morsetone Mgmt $5,000,000 Transaction Cost Legal & Admin Fees $950,000 LBO Advisory Fees 2,550,000 Senior Debt $95,160,000 Telcoware Buyout Tender Offer $80,160,000 Sales & Marketing 10,000,000 Expansion WC 5,000,000 TOTAL $103,660,000 TOTAL $103,660,000 CONFIDENTIAL 9
  11. 11. 2.0 INDUSTRY TRENDS & OVERVIEW CONFIDENTIAL 10
  12. 12. 2.1 Mobile Service Evolution The introduction of mobile technologies is driven by the demand for new services CONFIDENTIAL 11
  13. 13. 2.2 CDMA2000 Roadmap with Next Generation First new technology implementations occurred in Korea CONFIDENTIAL 12
  14. 14. 2.3 Subscriber Growth Technology innovation anticipates subscribers need for faster speed and services CONFIDENTIAL 13
  15. 15. 2.4 Protocol Architecture Picking the leader in Next Generation signaling and database management: Telcoware Telcoware Signaling Expert CONFIDENTIAL 14
  16. 16. 2.5 Nextgen Network Architecture No matter how much the network architecture changes, Telcowareʼs expertise does not CONFIDENTIAL 15
  17. 17. 2.6 Industry Conclusion • Technology constantly changes • Subscribersʼ appetite for faster speed and more complex applications • Voice is treated the same as other data packets • The telecom equipment marketplace is highly competitive but specialized • Access Network: Switch and core routing equipment (e.g., Samsung, Alcatel, Cisco, Ericsson, Huawei) • Gateways and Servers: AAA, HLR, App servers, etc (Telcoware sweet spot and market leader) • Handsets and Terminals: End-user equipment (e.g., Nokia, Samsung, Sony, Ericsson) • Standardization is becoming a central focus • A fixed-mobile convergence creates complexity • Mobile networks blend with fixed networks in architecture and standards • A unified standardization effort is the only way to have these networks speak the same language • Standardization bodies from landline mobile and broadcasting are deciding on a single standard for their networks to speak to each other • Korean telecom market leads global telecom landscape in technology innovation and implementation CONFIDENTIAL 16
  18. 18. 2.7 Where do you Compete? • Size and scope matters • Access Network Components is crowded with multibillion dollar equipment vendors like Cisco, Samsung, and Ericsson • Handsets and Terminals is sold directly to end-users which requires breadth and scale • A Core Network Sector within this highly complex telecom industry provides the sweet spot for smaller vendors • Expertise matters • Carriers (e.g., SK Telecom, AT&T, China Mobile) are the customers • Technological leaders have the largest market share • Technological leadership reduces switching costs • Stability matters • Carriers choose stable vendors to minimize switching costs • Stable companies continue to innovate in the ever-changing technology space CONFIDENTIAL 17
  19. 19. 3.0 ACQUISITION TARGET OVERVIEW CONFIDENTIAL 18
  20. 20. 3.1 Telcoware Business Summary Business Summary Telcoware Co., Ltd. is a Korea-based company engaged in the provision of network solutions and related services for telecommunications companies. The Company mainly provides two categories of products: voice over Internet protocol (VoIP) core networks solutions and wireless data solutions. Its VoIP core network solutions include home location register (HLR), authentication center (AC), equipment identity register (EIR), number portability database (NPDB), gateway location register (GLR) solutions and others. Its wireless data solutions consist of telephony and IP integration systems,authentication, authorization and accounting (AAA) systems, as well as instant messaging (IM), fixed mobile convergence gateway (FMCG), session initiation protocol (SIP) and push-to talk (PTT) solutions. Share Performance Price (KRW): 6,830.00 52 Week High: 8,330.00 Currency: KRW; Volume (millions): 0.0 52 Week Low: 3,430.00 CONFIDENTIAL 19
  21. 21. 3.2 Key Ratios and Statistics CONFIDENTIAL 20
  22. 22. 3.2 Income Statement TELCOWARE INCOME STATEMENTS ($000) Historical Fiscal Years Ending 12/31 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Sales..........................................…...…........… $54,546 $53,455 $60,244 $76,751 $97,780 $114,990 $129,593 $146,052 $164,600 Cost of Sales....................................….…….......… 33,922 32,608 36,146 41,445 50,846 59,795 67,389 75,947 85,592 Gross Profit.........................................…...…........… 20,624 20,847 24,098 35,305 46,935 55,195 62,205 70,105 79,008 Sales, General & Administrative Expenses ……….. 6,136 6,415 7,229 9,210 11,734 13,799 15,551 17,526 19,752 Special charges ………………………....………..… 0 0 0 0 0 0 0 0 0 Research & Development .....................………....… 6,213 5,346 3,012 6,140 7,822 9,199 10,367 11,684 13,168 Other Income (Costs) …………………………......………... 0 (5) 0 0 0 0 0 0 0 EBITDA bef. Restructuring Expenses ….………....….. 8,275 9,082 13,856 19,955 27,379 32,197 36,286 40,895 46,088 Restructuring Expenses ………………………...… 0 0 0 0 0 0 0 0 0 EBITDA.............................................……...…....… $8,275 $9,082 $13,856 $19,955 $27,379 $32,197 $36,286 $40,895 $46,088 Depreciation........................................……..........… 465 429 419 479 625 810 962 1,090 1,235 Goodwill Amortization ……………………….…… 0 0 0 0 0 0 0 0 0 Intangible Amortization …………………………………… 0 0 0 0 0 0 0 0 0 Financing Cost Amortization …………...…...…......… 0 0 0 0 0 0 0 0 0 EBIT..................................................….......…....…. $7,810 $8,653 $13,437 $19,476 $26,754 $31,387 $35,325 $39,804 $44,853 Interest Expense …………………………….…….. 0 0 0 0 0 0 0 0 Interest Income ...................................……......… 0 0 0 0 0 0 0 0 Minority interest ………………………..………… 0 0 0 0 0 0 0 0 Pretax Income..............................….....……......… 8,653 13,437 19,476 26,754 31,387 35,325 39,804 44,853 Current Income Tax ...........................…….....… 0 0 0 0 0 0 0 0 Deferred Tax ...............................……….........… 0 0 0 0 0 0 0 0 Net Income..........................................……….… $8,653 $13,437 $19,476 $26,754 $31,387 $35,325 $39,804 $44,853 Dividends to other than common: Preferred stock………………………….…….…… 0 0 0 0 0 0 0 0 Net Income Available to Common……..……......… 8,653 13,437 19,476 26,754 31,387 35,325 39,804 44,853 CONFIDENTIAL 21
  23. 23. 3.3 Balance Sheet TELCOWARE BALANCE SHEETS ($000) Historical Fiscal Years Ending 12/31 ASSETS 12/31/2009 2009 2010 2011 2012 2013 2014 2015 Current: Cash and Marketable Securities ..........................................… $34,675 $35,089 $10,655 $11,050 $16,798 $29,315 $47,048 $68,350 Accounts Receivable..............…..…………..…………..…… 13,370 13,103 14,767 18,813 23,967 28,186 31,765 35,799 Inventories...................................…………...........................…65 62 69 79 97 115 129 146 Other Current Assets....................……….............................… 1,099 1,077 1,214 1,546 1,970 2,317 2,611 2,943 Total Current Assets...................…………..........................… 49,209 49,331 26,705 31,488 42,833 59,932 81,553 107,237 PP&E and Capitalized Leases............................................… 26,546 26,619 29,254 35,120 42,608 49,034 54,761 61,223 Less: Depreciation.........................…………...........................… 8,745 9,174 9,593 10,073 10,697 11,507 12,469 13,559 Net PP&E and Capitalized Leases……………...........................… 17,801 17,445 19,660 25,047 31,910 37,527 42,293 47,664 Other Noncurrent Assets: Investments ……………………………....……...... 8,196 8,196 8,196 8,196 8,196 8,196 8,196 8,196 Other Assets...............................…………............................… 4,123 4,123 4,123 4,123 4,123 4,123 4,123 4,123 Total Assets.................................…………........................…… 79,329 79,095 58,685 68,855 87,062 109,777 136,165 167,220 LIABILITIES Current: Short-term Debt & Current Portion of LTD ….... 0 0 0 0 0 0 0 0 Accounts Payable....................................…….........…...…......… 5,807 5,582 6,188 7,095 8,704 10,236 11,536 13,001 Accrued Expenses...................................…….......................…… 110 108 121 155 197 232 261 295 Other Current Liabilities.............................………....................…. 587 575 648 826 1,052 1,237 1,395 1,572 Total Current Liabilities............................………........................… 6,652 6,265 6,958 8,076 9,954 11,705 13,192 14,867 Long-term Debt: Senior debt ……………...………...……...……… 95,160 86,660 52,120 41,696 31,272 20,848 10,424 0 Total Long-term Debt.......................................................................... 95,160 86,660 52,120 41,696 31,272 20,848 10,424 0 Other Noncurrent Liabilities .........……………………….......….… 2,209 2,209 2,209 2,209 2,209 2,209 2,209 2,209 Total Liabilities...........................………………………........… 104,021 95,134 61,287 51,981 43,435 34,762 25,825 17,076 Common Stock and Retained Earnings..................................... (24,692) (16,039) (2,602) 16,874 43,628 75,015 110,340 150,144 Total Net Worth .............................................................. (24,692) (16,039) (2,602) 16,874 43,628 75,015 110,340 150,144 Total Liabilities and Equity........................................................... 79,329 79,095 58,685 68,855 87,062 109,777 136,165 167,220 CONFIDENTIAL 22
  24. 24. 3.4 Statement of Cash Flow TELCOWARE CASH FLOW STATEMENTS ($000) Fiscal Years Ending 12/31 2009 2010 2011 2012 2013 2014 2015 Funds from Operating Activities Net Income Available to Common.....….........…….…. $8,653 $13,437 $19,476 $26,754 $31,387 $35,325 $39,804 Depreciation.......................…....….……...……....… 429 419 479 625 810 962 1,090 Change in current assets except cash……….. ...… 292 (1,808) (4,389) (5,596) (4,582) (3,888) (4,382) Chg in current liabilities except debt ….……..….…. (387) 693 1,118 1,878 1,752 1,487 1,675 Change in Net Working Capital.........……….….….. (95) (1,115) (3,271) (3,718) (2,830) (2,402) (2,707) Funds From Operations...................….…….…......… 8,987 12,741 16,684 23,660 29,367 33,884 38,188 Funds for Investment Capital Expenditures ……………...………...…..… (73) (2,635) (5,866) (7,488) (6,426) (5,727) (6,461) Funds from (to) Financing Debt, Preferred, Minority Retirement ………....…. (8,500) (34,540) (10,424) (10,424) (10,424) (10,424) (10,424) Common Dividend Paid ………….…….…......……. 0 0 0 0 0 0 0 (8,500) (34,540) (10,424) (10,424) (10,424) (10,424) (10,424) Increase in Cash …….................….....……......….. 414 (24,434) 394 5,748 12,517 17,733 21,302 End-of-Year Cash & Marketable Securities ………. $35,089 $10,655 $11,050 $16,798 $29,315 $47,048 $68,350 CONFIDENTIAL 23
  25. 25. 3.5 Transactions Summary SOURCES AND USES OF FUNDS AT CLOSING ON TELCOWARE ENTERPRISE PURCHASE PRICE ($000) Telcoware ($000) Equity Purchase Price..................…….....................… $80,160 Uses: Sources: % of Capital Assumed or Refinanced Debt and Preferred Stock ............................……0 Cash on Balance Sheet................…….…................… (43,175) Offer Price per Share………..………...... $10.44 Cash in the Company.......…..… $8,500 8.2% Transactions expenses ……………………………… 0 Shares Outstanding ...……..….…….….. 7,680 Cash from the Acquirer …….. 0 0.0% Enterprise Purchase Price .........…...….…..….........… $36,985 Equity Purchase Price ……...………..… $80,160 Equity Rollover ………...…...… 0 0.0% Enterprise Forward EBITDA Purchase Multiple ……………………. .1 x 4 Transaction Expenses .…...……….…… 0 New Common Stock Issued …. 0 0.0% Paid Trailing P/E Multiple ……………………………………… 16.3 x Total Purchase Price ….…...……….….. $80,160 Short-Term Debt ……....……… 0 0.0% Pre-announcement Trailing P/E Multiple…………………………………. 13.0 x Retire Short-Term Debt ………..……… 0 Revolver ………………...…….. 0 0.0% Retire Senior Debt ………….……..…… 0 Senior Debt …….……………… 95,160 91.8% Retire Revolver …………………………. 0 Other Long-Term Debt ……………. 0 0.0% Retire Other Long-Term Debt ……..…. 0 Subordinated Debt 1 …………. 0 0.0% • 25% Premium to forecasted stock price at Retire Subordinated Debt …..……....… 0 Subordinated Debt 2 …………. 0 0.0% closing Retire Other Sub Debt ………..……..… 0 OID Debt …………...…………. 0 0.0% • $8.5M paid back from Cash Reserve Retire Preferred Stock …....…....….…… 0 Assumed Debt ………….………. 0 0.0% Retire Convertible Preferred Stock …… 0 Preferred Stock ………...……… 0 0.0% • $35M initial pay down of Senior Debt Retire Minority Interest …………..…... 0 Convertible Preferred Stock.. … 0 0.0% • DCF Value at $90M Assumed Debt ……………………………… 0 Assumed Preferred Stock …...….. 0 0.0% • APV Valuation at $92M Assumed Preferred Stock ………………… 0 Minority Interest …………………. 0 0.0% • Currently, stock repurchase Assumed Minority Interest ………………. 0 Warrants Issued …………………. 0 0.0% Prepay Penalties/Retirement Premiums 0 announced to stabilize stock price Cash for Working Capital ……………. 23,500 • Current stock price devaluation due to Total Uses …………………………….. $103,660 Total Sources …………...……. $103,660 100.0% sector earnings pressures CONFIDENTIAL 24
  26. 26. 3.6 Why Leveraged Buyout? Telcoware is an undervalued and under-managed enterprise • Stable Cash Flow and customer base • No Debt; Cash & Cash Equivalent 35% of Market Capitalization • Leadership positioning to an incumbent customer base which is leveraging legacy • Underperforming stock and earnings vs. KOSPI; • Using cash flow to repurchase stock versus business and market growth; • Increasing R&D budgets • Not effectively leveraging cash flows and borrowing power • Not expanding sales geographically in emerging consumer markets • Cultural Korean protocol limits growth e.g., no debt CONFIDENTIAL 25
  27. 27. 3.7 SWOT Analysis S W INTERNAL VARIABLES Stable free cash flow Debt free Dependent on a single market: Korea Proven R&D Weak global market presence Industry leader: technology, Small sales force focused on engineering technology and development Diversified products and services Public company listing issues Loyal customer base: KT, Daum, SKT Naver O T Grow intl. sales and customer base Privatization eradicates reporting EXTERNAL VARIABLES Weak telecom market, slower growth Reduce operating expenses for Large telco equipment vendors profitability targeting Asian markets Divest non-core assets Economic downturn limiting lending Become leader in AAA functionality from banking sector in wired, wireless telecom Lack of debt is ideal for target for Alliance, co-development for 3G and takeover 4G, data roaming, settlement, clearance CONFIDENTIAL 26
  28. 28. 3.8 Revenue Contribution by Product Portfolio driven by technology leadership not volumetric market gains (in 10MM Won) CORE REVENUE Revenue analysis shows that Telcowareʼs core competency is in core network components; #1 in technology patents and market share for these products in Korea; all products are SS7 signaling-related CONFIDENTIAL 27
  29. 29. 3.9 Revenue Model • Revenue projected to grow on average 30% year-over-year • Average contract size for Telcoware Products and Services is $3 to $5 million • SK Telecom accounts for approximately 50% of their revenue base • KT, LG, Daum and Naver account for the rest of the 50% • By selling core products (which accounts for 90% of the revenue base today) outside of Korea, Telcoware can accomplish this growth target on a conservative basis • There are over 100 carriers throughout Asia • Key customers outside of Korea: China Mobile (China), Reliance (India), Tata (India), China Unicom (China), and Bharti (India) and rest of Asia • 4 new customers per year would meet the 30% growth target • Morsetone already has relationships with over 25 carriers who are ready to upgrade to a better HLR, AAA, and IMS • The revenue assumption is a very conservative case scenario • Additional upgrades and maintenance contracts would supplement core base revenues by approximately 20% CONFIDENTIAL 28
  30. 30. 3.10 Revenue Expansion Model TODAY: 100% revenue contribution South Korea CONFIDENTIAL 29
  31. 31. 3.11 Operational Efficiencies • Cost of Goods Model • Currently, Telcoware has improved COGS to 61% of Sales • There is an opportunity decrease this to an additional 10% of Sales • Telcoware remains a “Made in Korea” vendor with all sourcing and labor from within Korea which is about 40% more in labor costs and about 10% more in components pricing • By resourcing equipment components from same equipment quality sources in China and Japan would increase COGS by an additional 5% • Some core components can be manufactured in China with equivalent engineering talent – an additional 2% cost improvement • Headcount Analysis • Remove redundant management layers • Currently there are two layers of senior management between the Managing Directors and Program Managers creating unnecessary overhead • Replace layers of inefficient management with Sales and Marketing personnel • Non-Korean, market based • Executive Vice President will also bring seasoned sales professionals • Reduce headcount with more efficient and effective partnerships and alliances CONFIDENTIAL 30
  32. 32. 3.12 Technology Evolution Telcoware core equipment already compliant for Wibro, Mobile Wimax, LTE, and Next Generation IEEE 8022.16n standards. CONFIDENTIAL 31
  33. 33. 4.0 LEVERAGED BUYOUT CONFIDENTIAL 32
  34. 34. 4.1 Leveraged Buyout Process • Investment banking and Fairness Opinion • Incorporate acquisition vehicle • Binding financial commitments: debt and equity • Definitive Agreement • Final Fairness Opinion • Begin negotiations with Financial • Finalize Financing Agreement Sponsor group • Acquisition Agreement executed • Retain investment banking advisors • Press Release • Legal Agreements WEEKS 16 - 26 WEEKS 12 - 16 • Letter of Intent BID PHASE DUE DILIGENCE WEEK 26 & PRELIMINARY WEEKS 4 -12 NEGOTIATIONS EXECUTION MARKETING PHASE PHASE (IF REQUIRED) WEEKS 26 - 36 WEEKS 1- 4 CLOSING PHASE INITIAL DICUSSION PHASE • Confidential Information Memorandum • Management presentation • Final schedules to FSC • Valuation Analysis • Final approval by FSC • Initial meetings re: Structure, Capitalization, Accounting and Tax • Close acquisition • Identify optimal structure CONFIDENTIAL 33
  35. 35. 4.2 Revenue Growth vs Free Cash Flow Contribution $200,000 $180,000 $160,000 $140,000 $120,000 Free Cashl flow $100,000 EBITDA Revenue $80,000 $60,000 $40,000 $20,000 $0 2009 2010 2011 2012 2013 2014 2015 2016 2017 CONFIDENTIAL 34
  36. 36. 4.3 LBO Premium Calculation LBO is assumed at 25% premium despite a 30% premium calculation. CONFIDENTIAL 35
  37. 37. 4.4 Debt Repayment Telcowareʼs stable existing customer base is sufficient to repay LBO financing • At closing of LBO, Telcoware will immediately pay $8.5M to extinguish bridge financing to Morsetone • First debt payment of $34.5M paid from cash and cash equivalents of Telcoware • 20% of cash remaining on balance sheet • ʻExpected Caseʼ Scenario • Subsequent debt payments of $10.4M per annum to extinguish debt by 2015 • Cash balance covenant: 20% of cash reserves • Interest assumed at 6.5% • ʻWorst Caseʼ Scenario • Assumes flat revenue growth • Covenants remain the same: An additional 3 years to satisfy debt repayment, 2018 CONFIDENTIAL 36
  38. 38. 5.0 CREATION OF S&C CONFIDENTIAL 37
  39. 39. 5.1 “Filling the Next Generation S&C Gap” • Today, MACH is the global leader in “TAP”- based settlement and clearing • Accounts for over 150 billion records processed per annum • MACHʼs 2008 revenue was approximately $1.3 billion • Became the de facto standard by acquiring regional S&Cʼs • Acquired market leaders in S&C outside of MACHʼs markets • Active in GSM World Congress for standardization • Currently evaluating standardization change for Next Generation networks • Problem: MACH only owns the SS7 links and not the data file format for roaming resolution • Will need to begin from scratch to adjust to new standardization • “TAP” format is for circuit-switched voice traffic • Data roaming is currently being settled on a per Meg basis - inefficient • Gap: everyone starts from scratch for the Next Generation settlement and clearinghouse • By embedding Telcowareʼs roaming gateway throughout Asia, Morsetone S&C can become the standardization leader for the Next Generation S&C market CONFIDENTIAL 38
  40. 40. 5.2 Steps to build Morsetone S&C 1. Incubate S&C division within Telcoware 2. Increase R&D headcount for standardization effort 3. Embed Telcowareʼs roaming gateway throughout Asia 4. Active participation and standardization efforts with 3GPP, GSM World Congress, Wimax Forum, and IEEE 5. Relink SS7 signaling from legacy networks to Next Generation service networks 6. Spin-off during Telcowareʼs IPO 7. Build a global footprint outside of Asia via acquisitions CONFIDENTIAL 39
  41. 41. 5.3 Morsetone Financial Summary Morsetone Financial Summary ($ in thousands) 2010 2011 2012 2013 2014 Revenue $3,333.3 $4,000.0 $2,625.0 $31,062.5 $55,562.5 Cost of Service $0.0 $0.0 $215.3 $2,547.1 $4,556.1 Gross Margin $3,333.3 $4,000.0 $2,409.8 $28,515.4 $51,006.4 Gross Margin % 100.0% 100.0% 91.8% 91.8% 91.8% Operating Expenses $1,843.1 $4,152.4 $5,070.2 $6,432.1 $7,694.7 Operating Expense Ratio NM 103.8% 193.2% 20.7% 13.8% EBITDA $1,490.2 ($152.4) ($2,660.5) $22,083.2 $43,311.6 EBITDA Ratio 44.7% NM NM 71.1% 78.0% Net Income (Loss) $778.1 ($643.5) ($3,077.4) $14,513.7 $26,676.9 Net Income Ratio 23.3% NM NM 46.7% 48.0% Current Assets $5,778.1 $5,134.6 $2,272.4 $17,431.9 $44,431.7 Total Assets 6,271.0 10,180.4 7,521.5 23,103.6 50,521.8 Current Liability 492.9 1,254.8 1,673.3 2,741.7 3,483.0 Total Liability 492.9 5,045.8 5,464.3 6,532.7 7,274.0 Stockholder's Equity/Deficit 5,778.1 5,134.6 2,057.2 16,570.9 43,247.8 Total Liability and Stockholders' Equity $6,271.0 $10,180.4 $7,521.5 $23,103.6 $50,521.8 Net Increase (Decrease) in Cash ($221.9) $356.5 ($4,174.6) $11,222.0 $25,031.1 Cash Balance $4,778.1 $5,134.6 $959.9 $12,181.9 $37,212.9 CONFIDENTIAL 40
  42. 42. 6.0 APPENDIX CONFIDENTIAL 41
  43. 43. 6.1 Itemized Appendices 1. Financials and detailed analysis 1. Telcoware financials and LBO model 2. Telcoware equity premium calculator 3. Morsetone SNC model 2. Telcoware information overview 1. Information book (Korean) 2. Roaming gateway brochure 3. IMS brochure 4. IR book 2009 3. Industry information 1. CDG presentation 2. BERGE new business models 2007 3. Korean government initiatives 4. Other supporting documents - LBO price premium research CONFIDENTIAL 42
  44. 44. CONTACT John J. Shin President & CEO Morsetone, Inc. 8840 Stanford Boulevard, Suite 4000 Columbia, MD 21045 +1 443 538 8110 Jshin@Morsetone.com CONFIDENTIAL 43

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