MARCH 2014
MAY 2014
Investor Presentation
May 2014
Strictly Confidential
| 2
DISCLAIMER
This presentation contains forward-looking statements that reflect the current views of TronicsXchange management with respect to future events. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond TronicsXchange’s control. If certain risks and uncertainties materialize, or if the assumptions underlying any of these statements prove incorrect, our actual performance may materially differ from the performance expressed or implied by forward-looking statements. We can offer no assurance that our estimates or expectations will be achieved. We do not assume any obligation to update forward-looking statements to take new information or future events into account or otherwise. The information in this document is derived from sources believed to be reliable but which have not been independently verified. As such, financial statements have not been audited. TronicsXchange management and its related advisors make no guarantee of its accuracy and completeness and is not responsible for errors of transmission of factual or analytical data, nor is it liable for damages arising out of any person’s reliance upon this information. All charts and graphs are from publicly available sources or proprietary data.
| 3
TABLE OF CONTENTS
What is TronicsXchange?
Assessing the Market Opportunity
TronicsXchange Competitive Advantages
Investment Opportunity
1
2
3
4
4
Exit Opportunities 5
10
15
19
21
| 4
TRONICSXCHANGE OVERVIEW
TronicsXchange is a mobile phone and electronics reuse/recycler that acquires small, late model electronics in working or broken condition and recycles or resells them for their highest possible value.
Founded in 2012, TronicsXchange utilizes retail kiosk locations and its e-commerce store to acquire product and re-sells them through its retail kiosk and e-commerce channels.
| 5
HOW IT WORKS
Find the Location: Prospective customers visit a convenient retail location in the Southern California region or visit the website. Online customers can select their electronic device from a drop-down menu and view the price TronicsXchange will pay for their device.
Bring or Ship the Device: In-house technicians determine the quality, trade-in value and verify details for processing. Customer can also choose to get the device repaired.
Get Paid: Customers are then paid in cash at a retail location or either through PayPal or a check via the e-commerce store.
| 6
TRONICSXCHANGE’S STRONG REGIONAL FOOTPRINT
11 Locations
Growth Objective
TronicsXchange has built a strong regional presence in major retail shopping centers throughout Los Angeles and San Diego.
The company seeks to develop its extensive collection and distribution network within California, enabling it to gain national market share and economies of scale within the competitive recycled Mobile Device market.
Management is looking to expand to additional high-traffic locations in Southern California and throughout the United States.
| 7
TRONICSXCHANGE: KEY FINANCIAL METRICS
TRONICS XCHANGE’S MANAGEMENT TEAM HAS LEVERAGED YEARS OF INDUSTRY EXPERIENCE AND OPERATIONS EXPERTISE TO QUICKLY ESTABLISH A PROFITABLE, RAPIDLY GROWING COMPANY.
Gross Profit Margin
Net Income Margin
%63.3
%10.1
Revenue $5,771,720 Gross Profit $3,653,947 Net Income $583,132
2013 vs. 2012 Comparison
Source: 2013 TronicsXchange Financial Statements
Net Income Growth
+$894,898
Gross Profit
483%
Revenue Growth
749%
Cash Flow From Operations $385,360
Net Increase in Cash $57,487
| 8
MANAGEMENT TEAM
Chief Executive Officer Seasoned Entrepreneur with 16 Years in the Wireless industry. Built sales and marketing campaigns for major carriers such as Nextel and
Sprint. Ran leading Sprint/NexTel organization in US from 2000 - 2007.
Chief Technology Officer Developed and designed custom software applications during a 15 year
career in the Wireless industry. Completed Tiers 1,2, and 3 hardware and software training at UT
Starcom, a cell phone manufacturing and support facility.
Vice President, Sales 16 years of business development and revenue management experience
across sales and distribution roles with Nextel and Platinum Wireless. Expanded operations to 30 states and over 3000 points of distribution.
Chris Sabeti
Alex Aladort
Argishti Khudaverdyan
(Argo)
| 9
MANAGEMENT CONTINUES TO INVEST IN KEY MARKETING INITIATIVES
| 10
MOBILE DEVICE RECYCLING MARKET SNAPSHOT
Source: Sanford Bernstein, IBISWorld
The mobile device (phones, tablets) recycling industry is forecasted to experience growth of 37.1% annually over the next five years.
Smart-phone adoption will continue to grow at a rate of 7.9% through 2018.
175 million new devices are sold in the US annually, but less than 20% of all mobile devices are currently being recycled, indicating significant upside potential.
Americans replace their phones every 21.7 months, the highest rate of frequency of any country in the world.
The total market for used smartphones in the US is estimated to $6 billion.
| 11
RECENT DEVELOPMENTS
Source: Wall Street Journal, Bloomberg, Compass Intelligence
Raises $8M in financing (January 2013) and another $105M in October 2013. The company announced that it recycled 1.1M devices in a single month (May 2013).
Reaches $100M milestone in device payouts to customers (June 2013). In the same month, Gazelle announced that it would add 438 new jobs at its processing center in Kentucky. It has received $46.4M in funding as of July 2011.
Softbank agrees to pay $1.26B for a 57% stake in Brightstar (October 2013).
Disruption of existing business models and rapidly growing trends have spurred increased interest and investment flows into the mobile recycling space.
Announces no annual contract requirements or termination fees for customers in March 2013, prompting its stock price to raise by 61.8% (COB 5/16/14). In May 2014, the company announces 2.4M net new subscribers, making it the fastest growing mobile carrier in the US. In addition, the company announces that it will no longer be subsidizing the cost of new phones, which we expect will raise the demand for 2nd hand mobile devices.
| 12
KEY SUCCESS FACTORS
Source: NPD Group, IBISWorld
Increased government regulation will likely provide greater opportunities for the industry; stricter electronics recycling regulations result in a higher volume of recyclable phones for operators.
Regulations and Environmental Policy
55% of the 1,000 smartphone users surveyed said they would take advantage of trade in programs the next time they upgrade. Over 60% of respondents are willing to change retailers in exchange for a better trade-in value.
Increased Awareness from Consumers Regarding Trade In Programs
As purchases of industry-relevant products have grown, so has the rate of disposal of obsolete products. Early adopters will continue to “trade up” from previous versions to the latest version of products like Apple’s iPhone, while customers that never owned a smartphone will find increasing options for ownership through the industry’s sale of used devices.
Rapidly Changing Technologies and Higher Quality 2nd Hand Devices
| 13
AN EXTRAORDINARY OPPORTUNITY FOR IPHONE 4/4S RECYCLING
Source: Morgan Stanley, Alpha Wise
iPhone Installed Base by Generation and Post-Paid Carrier (%)
3
56
24
17
10
42
25 23
2
47
24 27
0
35
24
41
iPhone 3GS iPhone 4/4S iPhone 5 iPhone 5c/5s
Verizon AT&T Sprint T-Mobile
DUE TO THE EXPECTED IPHONE 6 RELEASE, TRONICSXCHANGE PROJECTS SIGNIFICANT TRADE-IN REVENUE AND INVENTORY SURGE IN Q3 AND Q4 OF 2014. TRONICSXCHANGE REQUIRES A FRESH INJECTION OF WORKING CAPITAL TO CAPITALIZE ON THIS OPPORTUNITY.
| 14
OUR BUSINESS IS STRONGLY ALIGNED TO CUSTOMER PREFERENCES
Source: Compass Intelligence
Survey of 1,205 Mobile Phone User Preferences (April 2014)
END USERS TAKE ADVANTAGE OF PHYSICAL RECYCLING LOCATIONS COMPARED TO ONLINE RECYCLING. MOREOVER, CASH IS THE NUMBER ONE INCENTIVE OPTION FOR END USERS, WITH ONLY A FEW PROGRAMS IN THE MARKET OFFERING A CASH OPTION. OUR CASH PAYOUT AND RETAIL KIOSK BUSINESS MODEL IS WELL POSITIONED TO CAPITALIZE ON CUSTOMER INSIGHTS AND PREFERENCES.
42%
58%
Online Recycling In-Store Recycling
44%
56%
Carrier Only Recommerce/3rd Party
| 15
THE REUSE AND RECYCLING INDUSTRY
| 16
STAYING COMPETITIVE IN THE HIGHLY FRAGMENTED BUYBACK MARKET Carriers
OEMs Retailers & Recommerce Websites
| 17
KEY COMPETITIVE ADVANTAGES
Source: IBISWorld
Physical Retail Locations As opposed to many of its competitors that singularly depend on e-commerce, TronicsXchange’s revenue model of retail kiosks in high traffic areas enables its to obtain and turnover product quickly.
Strong Regional Presence
16.3% of the mobile device recycling industry’s revenue comes from California alone. TronicsXchange has focused on building customer loyalty and brand equity in Southern California, enabling it to reach profitability quickly and to expand into surrounding markets.
A Proven Management Team
TronicsXchange’s management team has a combined 47 years of sales, marketing, operating, and management experience in the mobile technology and electronics recycling industry.
| 18 Source: eBay Seller Ratings
99.8% eBay Seller Rating
97.3% eBay Seller Rating
Our proprietary technology and software platform automates each step of our value chain and is scalable across existing and future locations, enabling TronicsXchange to collect real time data on sales & diagnostic metrics.
Key Features include: Buy Back POS, Sales POS, Repair POS w/ Automatic customer emails, Automatic BuyBack Pricing API, Buy & Sale Real Time Reporting, Rep & Location Statistics, Built in Referral & Membership program, Marketing Analysis Reporting with Age Demographics & Customer Statistics.
Our commitment to operational and technological synergies has created a loyal, satisfied customer base, positive brand equity, lower operating costs, and higher profit margins.
UTILIZING TECHNOLOGY TO CREATE A SUPERIOR CUSTOMER EXPERIENCE
| 19
TRONICSXCHANGE SEEKS AN INJECTION OF CAPITAL TO SCALE QUICKLY
Increase IT Infrastructure and E-Commerce Presence
Expand Retail Kiosk Locations Nationally
Improve Existing Kiosk Locations, Displays, and Signage
Bolster Working Capital for Inventory Purchases and Hiring
Broaden Multi-channel Marketing Initiatives
Kiosk Expansion (21 new locations by Q2 2016) Kiosk UpgradesOperating Capital
OnlineMarketing
Software& IT
Operating Capital for Inventory and HiringKiosk Expansion (21 New Locations by Q2 2016)Kiosk Upgrade and Improvements, displays, signagIT Infrastructure & SoftwareOnline Marketing InitiativesTotal
$250,000$850,000$60,000$200,000$140,000$1,500,000
200k 60k140k 250k 850k
$1,500,000
| 21
EXIT OPPORTUNITIES
Source: NPD Group, IBISWorld
We expect to incur a low debt-to-equity ratio based on the projected cash flows of the business and expected high profit margins. Therefore, we expect TronicsXchange to be a strong candidate for a dividend recap in lieu of other exit options.
Dividend Recapitalization
TronicsXchange’s rapidly growing business model, strong customer engagement, brand exposure in Southern California, proprietary technology, and physical retail presence may be extremely valuable to multiple players within the re-commerce industry.
A national retailer (GameStop, Target) or an asset recycler (Waste Management, Iron Mountain) looking to participate in the mobile electronics recycling industry’s high growth can choose to purchase TronicsXchange to realize operational and cost synergies and increase profit margins.
Strategic Acquisition
The high margin nature of the TronicsXchange business model, along with its strong per unit economics makes it an ideal candidate for a leveraged buyout from a private equity firm.
Private Equity Buyout
| 22
SELECTED TRANSACTIONS
OuterWall, Inc.
July 2013
$350M (All Cash)
Automated Self-Serve Kiosks
GameStop, Inc.
March 2012
N/A
Online Buy Back
Clover Wireless
December 2012
N/A
Online Buy Back
Target
Purchaser
Date
Price
Focus
Consolidation activity is expected to increase concentration over the next five years, as larger recyclers and companies outside this industry begin buying smaller companies to expand their geographical reach and create supply-chain efficiencies.
INDUSTRY CONSOLIDATION PRESENTS AN UNPRECEDENTED OPPORTUNITY FOR TRONICSXCHANGE INVESTORS TO REALIZE SIGNIFICANT RETURN ON INVESTED CAPITAL THROUGH AN ACQUISITION.
Source: Bloomberg, Capital IQ
MARCH 2014
MAY 2014
Thank You
Contact Information: Chris Sabeti [email protected] Scott Walker [email protected]