Navtech, Inc. Valuation
September 5, 2007
Confidential
Exhibit (c)(1)
NAVTECH VALUATION
This Valuation Report, prepared by The Jordan, Edmiston, Inc. (“JEGI”) for Cambridge Information
(“CIG”), is for Navtech, Inc. (“Navtech” or “the Business”), of which CIG holds a significant ownership
stake. The Valuation Report is based on information provided by Navtech, Inc. management and
Navtech’s public filings, and from information contained in JEGI’s proprietary files.
The valuation contained in this Valuation Report is based upon the assumption that the financial and
market-related information provided by Navtech is accurate, and no attempt to verify its accuracy
through other sources has been made. No warranty, express or implied, or representation is made as
to the completeness or accuracy of the information contained herein. The valuation is in part based on
projections of future results which are inherently uncertain. Furthermore, the opinions upon which
JEGI bases its valuation are time sensitive and include interpretations of marketplace activity that
existed and could be evaluated as of the date of this report, and may or may not be accurate.
Although subsequent developments may affect the valuation, JEGI is under no obligation to update,
revise or reaffirm the report.
The information contained herein is highly confidential and has been prepared for internal use by CIG.
The information contained herein may not be made available to any other third party, without the prior
written consent of JEGI.
Wilma Jordan
Chief Executive Officer
Jason Birke
Senior Associate
Bill Hitzig
Chief Operating Officer
Richard Mead
Managing Director
Disclaimer
2
Navtech, Inc. Valuation
CONFIDENTIAL
TABLE OF CONTENTS
I.
Navtech Valuation Overview
II.
Airline Industry Headlines
III.
Navtech Background & Financial Overview
IV.
Navtech Valuation Summary
3
Navtech, Inc. Valuation
CONFIDENTIAL
NAVTECH VALUATION OVERVIEW–
KEY ASSUMPTIONS
The key assumptions underlying this valuation report are as follows:
The basis for this valuation report is an analysis of Navtech’s stock
The financial information in this report is reported in $ USD and presents Navtech’s 2007 budget with a fully loaded cost structure
The Company is currently not in default with respect to its debt covenants and will not be in default in the foreseeable future
Projections beyond 2007 were prepared by JEGI and based on JEGI’s discussions with management and our understanding of the
Company’s growth opportunities
Navtech management believes it will achieve its forecasted 2007 Revenues and EBITDA of $41.5 million and $3.9 million, respectively
We have used Navtech management’s revised forecasts for 2007 and have assumed some improvement in EBITDA margins over
the next five years
JEGI’s analysis incorporates several valuation techniques, including: an analysis of multiples for public companies in sectors similar to Navtech’s; an analysis of transactions involving public companies in similar sectors; and a discounted
cash flow (“DCF”) analysis based on the Company’s historical and projected performance
Building upon the data, including the 2007 budget, provided by Navtech management to its board of directors and reviewed with JEGI, JEGI’s DCF model arrives at a $33.7 million enterprise valuation for Navtech and a corresponding per share equity value of $1.76, representing a 7% discount to Navtech’s $1.90 August 30 stock price
th
Representing an 8.6x multiple of Navtech’s 2007F $3.9 million EBITDA, a $33.7 million enterprise valuation is supported by the estimated 8.7x median enterprise value to EBITDA multiple suggested by comparable transactions (Navtech’s fiscal year ends October 30)
Equity premia in application software transactions closed or announced over the past three years, for companies with margins similar to Navtech’s, range approximately
between 10% - 25%. Applying this range to the Company’s $1.90 August 30 stock price yields a share value range of $2.09 - $2.38, which equates to an enterprise value range of $35.1 million - $36.4 million. Were the Company valued in an auction process, under current M&A market conditions, Navtech’s enterprise value might fall within this range
th
Given that there are few, if any, publicly traded, charting and decision-support data companies that, like Navtech, exclusively serve the commercial airline industry, the 3.0x revenue and 12.0x EBITDA enterprise value multiples for the broader point application and workflow software services industry are not illustrative for valuing Navtech
The DCF methodology, which factors JEGI’s understanding of the Company’s current economic conditions and available future growth
opportunities, most closely captures the Company’s value
4
Navtech, Inc. Valuation
CONFIDENTIAL
TABLE OF CONTENTS
I.
Navtech Valuation Overview
II.
Airline Industry Headlines
III.
Navtech Background & Financial Overview
IV.
Navtech Valuation Summary
5
Navtech, Inc. Valuation
CONFIDENTIAL
GLOBAL AIRLINE INDUSTRY HEADLINES
International Air Transport Association (IATA) forecasts the global airlines to generate
total operating profits of $3.8 billion in 2007, up from a previous forecast of $2.5 billion
Recovery at hand after six year streak of consistent losses ($42.1 billion from 2001 to 2006)
Passenger revenues expected to grow 4.7% year over year, to $375 billion; air-cargo revenue
forecast to grow 3.75% in 2007 to $56 billion
Industry profits projected to climb to to $7.6 billion in 2008
Strong global growth in flights and seats indicates positive demand environment
Global Revenue Passenger Kilometers grew 7.0% in Q1’07 over Q1’06, as compared to 5.9%
growth posted for the same period a year ago
2.51 million passenger flights are scheduled for May 2007, topping the previous industry high
of 2.49 million reported for August 2006
Due to a surge in the popularity of low-cost airlines, more than 114,000 more flights are expected than
during the same period last year – a 5% rise
Average international passenger load factors were 74.9%, representing the second
consecutive year of monthly increases in year-on-year load factors
Strong economies in Europe, Asia and North America continue to drive increases in year-on-
year passenger demand of 5.0%, 6.9% and 8.2%, respectively
Sources: International Air Transport Association (IATA.org) and OAG Quarterly Airline Traffic Statistics
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CONFIDENTIAL
Navtech, Inc. Valuation
GLOBAL AIRLINE INDUSTRY HEADLINES (CONT’D)
Substantial improvement in U.S. airline revenues, earnings and passenger traffic throughout the
majority of 2006
Industry restructuring is afoot; despite estimated losses of $5.0 billion in 2006 for the top 10 U.S. carriers,
Standard & Poor’s forecasts a $3.8 billion profit for the group in 2007
S&P expects restrained capacity levels, a record percentage of seats filled on average, strong passenger demand, and
rising prices to support strong growth in 2007
Stability of global airline industry remains fragile and highly sensitive to several potentially
threatening macroeconomic and industry-specific developments
Geopolitical unrest in Iraq, Iran and North Korea; resurgence of terrorism concerns and resulting increased
security impositions; and slowing of U.S. economy weaken demand growth
Volatility in oil prices associated with high consumption trends in the U.S., India and China; and concerns
about supply disruption in Russia, Nigeria, Venezuela and the Middle East
Industry fuel costs totaled $112 billion (26% of operating expenses) in 2006, up from $44 billion (14% of operating
expenses at US$28/barrel) in 2003
“Open Skies” deal easing restrictions on Europe-U.S. travel likely to boost competition between airlines and
lead to lower fares, impacting revenue yields already under pressure due to successful low-cost carriers
Source: Standard & Poor’s Airline Industry Survey, November 2006 and International Air Transport Association (IATA.org)
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Navtech, Inc. Valuation
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AIRLINE INDUSTRY PASSENGER GROWTH &
YEILD TRENDS
Source: International Air Transport Association (IATA.org) and The Wall Street Journal (“Calculating Costs in the Clouds,” 3.6. 2007)
Passenger traffic generates approximately
80% of airline industry revenue
ATA March estimates call for nominal
revenue yield declines of 0.5% in 2007 vs.
3.1% growth in 2006
Estimates for passenger revenue growth
in 2007 well below growth in prior year
advances
Global Airline Industry
Passenger Revenue Growth &
Revenue Yield Trends
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
2003
2004
2005
2006
2007
2007
Passenger Revenue Growth
Yield Growth
With fuel costs eclipsing labor as top expense for aviation industry, airlines are
desperate to cut costs wherever possible
Many are relying increasingly on software that enables them to optimize their
operations and helps pilots, dispatchers and other crew find the most cost efficient
balance of fuel usage, flight speed and flight path
8
Navtech, Inc. Valuation
CONFIDENTIAL
TABLE OF CONTENTS
I.
Navtech Valuation Overview
II.
Airline Industry Headlines
III.
Navtech Background & Financial Overview
IV.
Navtech Valuation Summary
9
Navtech, Inc. Valuation
CONFIDENTIAL
NAVTECH INTRODUCTION
Navtech develops and markets integrated flight operations management software and data products for the commercial aviation industry
Decision support and web-based workflow and workforce management tools that streamline mission-critical tasks, including: navigation and route optimization, flight planning, aircraft performance measurement and crew operations planning
Major service/product categories and their respective contribution to total Company revenue include: Charting (43%), Flight Planning (27%), NavData Services (13%), Aircraft Performance (12%) and Crew Planning (6%)
Majority of Navtech revenues are derived from subscription-based information and software products and services
Of total $36.8 million in FY2006 revenues, more than $35 million, or 97%, was recurring in nature and originated from existing customers
Management expects to generate more than $37 million in recurring revenue from existing customers for FY2007, representing 90% of total revenue forecast of $41.5 million
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Navtech, Inc. Valuation
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NAVTECH INTRODUCTION (CONT’D)
Core market is small to medium-sized air carriers with fleets of 5 – 100 aircraft
Per management, the Company currently serves approximately 300 customers and no
single customer constitutes more than 14% of total revenue
Revenues spread across clients based in different geographic regions: North America, 22%;
U.K, 24%; Sweden, 23%; and Other European countries, 26%
With only 5% of revenue from Asia Pacific, Africa, Middle East and South America, exposure to such
high growth regions represents a potential future growth opportunity for the business
Revenue concentration may be an issue as two customers represent 22% of Navtech’s
revenue base (source: Navtech’s FY06 Form 10-K)
Acquisition of EAG in early FY2006 helped Navtech more than double its volume of
clients and triple its revenue base, from $11.1 million in FY2005 to $36.8 in FY2006
Having been divested from SAS with minimal sales and marketing resources, EAG had, prior
to Navtech’s acquisition, been focused solely on maintaining its existing European client
base and had experienced virtually no growth
Management plans to leverage Navtech’s sales force to sell EAG’s products into North
American and Asian markets
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Navtech, Inc. Valuation
CONFIDENTIAL
MARKET DYNAMICS &
COMPETITIVE ENVIRONMENT
Most airlines rely on printed navigational charts, and many are particularly slow to
adopt new technologies
Highly sensitivity to oil and labor costs, airlines, in some cases, prefer to use old flight
planning tools and other operations systems developed in-house rather than invest in
innovative software and risk incurring integration expenses
Government agencies in most nations provide a vast amount of navigational and
route planning and scheduling information free of charge, presenting both a substitute
for the products of aviation data and software companies, as well as a source of data
for prospective market entrants
Boeing/Jeppesen leads the charting, navigational data and route planning services
markets
Navtech management estimates Jeppesen has more than 80% market share in the global
charting market; 60% in the navigational data market; and 35% in flight planning
Deutsche Lufthansa (LIDO systems), EDS, Sabre Holdings, Aeronautical Radio, Inc.,
Lockheed Martin, Honeywell and SITA also represent competitors in several of
Navtech’s markets
The crew management and flight planning software markets are highly fragmented,
consisting of many solutions providers but few with industry leading products
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Navtech, Inc. Valuation
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NAVTECH STRENGTHS
In a number of the markets in which Navtech competes, it is among the top three by market share
In charting, Navtech’s share of market is 9%; navigational data, 25%; flight planning, 10 – 12%
Navtech has historically been a strong competitor to Jeppesen in North America, leveraging its
reputation for customer service to take share of market from them
Navtech is regarded in the marketplace as an entrepreneurial and nimble solutions provider,
quickly responding to customers’ demands
The Company’s charting products have a reputation for being clear and organized; they not only translate
freely available government information into a pilot-friendly format, but they also incorporate other
supplemental information (airport information, railroad information, etc) from multiple sources
Its flight planning optimization engine is based on algorithms crafted by aviation industry and programming
experts using current government air traffic and weather information, as well as historical data from
Navtech’s own databases compiled over the past 25 years
Navtech’s internal systems, which enable the Company to efficiently process up-to-the-minute aviation data
and use it to refresh its databases, represent an important asset
The Company boasts a sticky client base:
Over 75% of the Company’s software customers subscribe to at least one additional Navtech product
Approximately 50% of the Company’s data customers also subscribe to one of Navtech’s software products
Per management’s estimates as of the second fiscal quarter of 2007, over 90% of 2007 forecast revenue
will come from existing clients
Source: Navtech management
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Navtech, Inc. Valuation
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NAVTECH WEAKNESSES
Navtech’s products support an industry that is highly sensitive to macroeconomic cycles and global,
political affairs, and that, in certain large geographic markets, is still in the midst of a tenuous turnaround
Prospective North American airline customers may defer the opportunity to assimilate new data and software products
into their systems were the industry to suffer setbacks from: terrorist attacks, slowing consumer and business travel,
revenue yield declines due to price competition from low cost airlines, spikes in oil prices, etc.
Though unlikely in the near term, if the civil authorities in the geographical markets in which Navtech
operates begin distributing aviation and airport data in a user-friendly, digital format, Navtech could
potentially lose some of its customers
With approximately $23 million of debt on its balance sheet, Navtech’s current debt load may hinder the
Company’s ability to ramp the investments in R&D necessary to aggressively penetrate the North
American and Asian aviation markets
Collective bargaining agreements with Swedish staff (84 professionals out of total 261 personnel) may
impede management’s ability to lower operating expenses
Taking full advantage of growth prospects in untapped geographic markets where aviation is booming
may prove challenging if Navtech is unable to recruit, adequately train and direct local sales staff and
business development initiatives
Given the concentration of Navtech’s shareholders and lack of promotion among the investment
community about Navtech’s products and growth prospects, the stock is relatively illiquid
The combination of escalating R&D expenses and the need for additional mapping personnel is likely to
impair EBITDA and impede margin expansion
Source: Navtech management, Company filings and Capital IQ
14
Navtech, Inc. Valuation
CONFIDENTIAL
HISTORICAL REVENUE & EBITDA TRENDS
For the 2003 – 2005 fiscal period, Navtech grew revenue and EBITDA at CAGRs of 27%
and 17%, respectively
Underlined growth drivers include expansion of aviation markets in Europe and the Asia-Pacific
region, as well as Navtech product and diversification efforts
Acquisition of EAG in fiscal 2006, and the resulting inclusion of approximately 11 months of
EAG-related sales and operating expenses, presents a challenge in determining exact
2005/2006 and 2006/2007 performance improvements
Per Navtech management, EAG revenue had, prior to Navtech’s acquisition, remained flat at
approximately $28 million
Based on EAG information provided to date, LTM EAG Revenue and EBITDA margin as of 9/30/05
were approximately $25.5 million and 13%, respectively
Jan. 2005 – Nov 2005 average EBITDA margin was approximately 12%
While operating expenses as a percent of Navtech sales ranged between 35% and 45%
over the 2003 – 2005 period, impeding EBITDA margin expansion, the acquisition of EAG
in 2006 enabled the Company to substantially expand its revenue base while lowering
operating expenses as a percent of sales
Navtech’s EBITDA margin, as a result, grew from under 8% in fiscal 2005, to nearly 13.5% in fiscal
2006, and EBITDA grew more than 480% from $850,000 to over $4.9 million
Source: Navtech management, Capital IQ
15
CONFIDENTIAL
Navtech, Inc. Valuation
2007 REVENUE FORECASTS
For 2007, the Company forecasts 13% revenue growth over the prior year, driven by:
2.5% - 5% price increases for customers without fixed price contracts across a number of
major products, the revenue from which represents approximately 50% of the Company’s
total revenue base;
Increased traction of charting and navigational products in North American and Asian-Pacific
markets;
Growth of revenue from aircraft performance tools in North America, Europe and Asia; and
Continued growth in crew planning and management tools
According to management, although this market is fairly fragmented, Navtech has maintained its
position as one of the top crew management software solutions providers
Through its second fiscal quarter, Navtech earned $1.4 million in revenue from new
clients; at this pace, new client revenue should contribute approximately 7% of
Navtech’s 2007 revenue forecast
Assuming EAG contributed approximately $25 million to total FY2006 revenue of $36.8
million, Navtech alone exhibited little to no revenue growth in 2006
If 2006 were a transition year for business, with management primarily focused on integrating
the two companies, the addition of new customers as well as growth from existing customers
in FY2007 represents a positive trend, provided the forecasts are achieved
Source: Navtech management
16
Navtech, Inc. Valuation
CONFIDENTIAL
TABLE OF CONTENTS
I.
Navtech Valuation Overview
II.
Airline Industry Headlines
III.
Navtech Background & Financial Overview
IV.
Navtech Valuation Summary
17
Navtech, Inc. Valuation
CONFIDENTIAL
TRANSACTION COMPARABLES
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Navtech, Inc. Valuation
CONFIDENTIAL
Comparable transaction valuation multiples are sourced from public filings for a
range of software and information company transactions that have been
announced or have been finalized over the past three years
Over this period, there have been numerous software transactions, some of
which involved companies of comparable size to Navtech
We have included transactions involving application and decision support software
and data-driven businesses
These companies have been valued in the market at an average EBITDA multiple of
9.2x, and an average trailing 12 months revenue multiple of 1.6x
The companies and transactions listed in the following table may not resemble
Navtech in growth profile, product mix, operating leverage or served market
The transaction multiples listed, therefore, should not be relied upon as a
benchmark for valuation
TRANSACTION COMPARABLES (CONT’D)
Share price premium listed above represents the premium above trading levels one month prior to the transaction announcement, or, where that information is
not available, the premium above trading levels one week prior to the transaction announcement.
Navtech multiples are based on trailing twelve month revenue and EBITDA values as of April 30, 2007, and August 30, 2007 share price of $1.90
Comparable M&A Transactions 2004-2007 YTD
Transaction Multiples
Date
Buyer
Target
Target / Transaction Description
Valuation
($ millions)
EBITDA
Margin
Est. Share Price
Premium
Revenue
EBITDA
Jul-07
CIC LBO Partners
Alti SA
Software solutions for project management,
training, and change management.
85
9%
-17%
0.8x
8.7x
Jun-07
Affecto-Genimap
Component Software
Group ASA
Information management applications and e-
business intelligence solutions.
50
10%
22%
0.9x
9.2x
May-07
Invensys, Inc.
Cimnet Inc.
Integrated manufacturing software for the global
manufacturing industry.
22
58%
8%
4.2x
7.2x
Apr-07
Battery Ventures
Quovadx Inc.
Software for health information & IT vendors.
83
7%
21%
1.0x
14.8x
Apr-07
Siemens AG
IBS AG
Software solutions to measure industrial quality
and manage compliance efforts.
43
18%
48%
1.6x
8.7x
Apr-07
Management
Trace Group plc
Application software for insurance, property,
finance and payroll industries.
32
13%
58%
1.1x
8.4x
Apr-07
Captaris, Inc.
Castelle
Office automation systems and workflow
application integration.
10
25%
18%
1.0x
4.0x
Mar-07
Symphony Technology
Aldata Solution Oyj
29% stake in software provider servicing retail and
logistics companies.
130
9%
11%
1.1x
12.9x
Feb-07
CAE Inc.
Engenuity Technologies
Solution-oriented software tools and components
for visual applications.
18
18%
11%
1.3x
7.1x
Nov-06
InSight Venture Partners,
Bessemer Venture Partners
Netsmart Technologies
Software tools for health and human services
organizations in US.
109
16%
25%
1.9x
12.0x
Nov-05
Navtech Inc.
European Aeronautical
Group
Flight planning, airport analysis and flight
management tools.
23
13%
NA
0.9x
7.2x
Nov-05
Xchanging
CAD IT SpA
Software for insurance and banking industries.
113
20%
8%
1.8x
9.2x
Oct-04
Kronos, Inc.
AD Opt Technologies
Workforce planning and management tools.
36
14%
39%
1.7x
12.5x
Jul-04
Info Corp Pty Ltd.
RP Data Ltd
Subscription-based information and software
services to real estate markets.
55
46%
14%
3.3x
7.2x
Mean
20%
20%
1.6x
9.2x
Median
15%
18%
1.2x
8.7x
Aug-07
Navtech, Inc.
Workflow software and decision-support data
solutions for the aviation industry.
30
9%
NA
0.7x
7.6x
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Navtech, Inc. Valuation
CONFIDENTIAL
PUBLIC COMPANY MULTIPLES
There are few public, decision-support software and workflow database companies
that serve the commercial airline industry
Most of the following companies develop software solutions focused on a range of industries
rather than a single industry
The comparable public companies that follow are similar to Navtech in the following
respects:
They are point application, software providers whose solutions are industry and/or business
sector-specific (i.e., transportation, insurance, healthcare, finance, etc);
Their software solutions are of the workflow support, operations management and decision
support type, and like Navtech’s, help to streamline their respective customers’ resource and
asset allocation strategies; and
Their products and services are primarily sold primarily through direct sales force channels
The group trades at average revenue and EBITDA multiples of 3.0x and 12.0x,
respectively
Multiples generally expand with EBITDA margin and/or outlook for growth
Discounts for size and liquidity would be applied to enterprise value multiples for comparable
public companies
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Navtech, Inc. Valuation
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PUBLIC COMPANY MULTIPLES (CONT’D)
Decision-Support Software & Workflow Data Companies
($ in millions, except per share amounts)
Company
Ticker
Enterprise
Value (EV)
LTM
Revenue
LTM
EBITDA
EBITDA
Margin
EV/
Revenue
EV/
EBITDA
Artwork Systems Group NV
ENXTBR:ARTS
242
62
22
35%
3.9x
11.0x
Aspen Technology Inc.
AZPN
992
321
77
24%
3.1x
12.9x
Eclipsys Corp.
ECLP
1,090
456
67
15%
2.4x
16.2x
Fair Isaac Corp.
FIC
2,241
822
254
31%
2.7x
8.8x
Gemcom Software International Inc.
TSX:GCM
70
42
9
22%
1.7x
7.7x
Jack Henry & Associates Inc.
JKHY
2,327
668
208
31%
3.5x
11.2x
JDA Software Group Inc.
JDAS
705
359
69
19%
2.0x
10.2x
NAVTEQ Corp.
NVT
5,714
686
243
35%
8.3x
23.6x
Sapiens International Corp. NV
SPNS
58
44
7
15%
1.3x
8.7x
SPSS Inc.
SPSS
651
275
69
25%
2.4x
9.4x
Mean
25.3%
3.0x
12.0x
Median
24.6%
2.4x
9.8x
Source: Capital IQ and Company SEC Filings
Stock price as of August 30, 2007
Trading Multiples
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DCF VALUATION ASSUMPTIONS
Though prospects for geographic expansion seem attractive, management has, since May, revised
downward its 2007 EBITDA forecast, calling into question achievability of aggressive bottom line growth in
the future
For purposes of its valuation analysis, JEGI projected that Navtech would achieve a 7.5% revenue CAGR for the 2008–
2012 period, with 47% - 48% gross margins
Important factors contributing to Navtech’s lower expected 2007 EBITDA include: additional costs for the estimated 14
new FTEs, resulting in 8% increase in salary and benefits over 2006 level; greater than expected professional services
fees (audit, recruiting and tax), representing an increase of more than 89% over 2006 spending; and additional facilities
costs that are expected to be 24% higher than they were in 2006, as well as non-recurring CFO severance costs
2007 forecast EBITDA is approximately $3.9 million, reflecting EBITDA margin of 9.5%, more than 22% off management’s
May 2007 forecast of over $5 million
Management’s 2008 outlook calls for additional personnel and infrastructure spending which will take 2008 EBITDA
margin to approximately 8.8%, below 2007 levels
JEGI has conservatively assumed gradual EBITDA margin improvement from budgeted 9.5% in 2007 to
10% in 2009, reaching 15.0% in 2012 and representing approximately $9.0 million in EBITDA for that year
For 2007, management will make an estimated $2.4 million in leasehold improvements, systems hardware
investments and project-related capital expenditures for flight planning product upgrades, a unifying charting
system, and several other initiatives
Though product development investments should support revenue growth and EBITDA margin expansion in the future, it
seems the Company will have to make additional such investments over the next five years to maintain its market position
Given the Company’s debt covenants, the likelihood of these development projects coming to fruition in the future is,
therefore, unclear, as is the assumed future growth that should result from the completion of such contemplated projects
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Navtech, Inc. Valuation
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DCF VALUATION ASSUMPTIONS (CONT’D)
JEGI’s capex projections assumes that:
2007 capital expenditures will total approximately $2.4 million;
Excluding the 2007 cash impact of 2006-related leasehold improvements, normalized 2007
capital expenditures were approximately $1.5 million; and
Using normalized 2007 capital expenditures as a basis for future capital investments,
average annual capex through and following 2012 will be approximately 3.1% of sales
JEGI’s model assumes a simplified net working capital equation factoring only
receivables, prepaid expenses, payables and accrued liabilities (provided in
management’s 2007 budget)
Netting these accounts, net working capital for 2006 and 2007F averaged 13% of sales
We assume EAG-related intangibles will continue to be amortized over the next five
years, with average annual amortization expense of approximately $1.0 million
A terminal value is calculated using perpetuity with growth formula based on a
conservative 3.56% revenue growth rate following 2012 (i.e., revenue growth equal to
the rate of inflation)
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Navtech, Inc. Valuation
CONFIDENTIAL
Based on JEGI’s survey of other application software and workflow data tools
companies, we arrive at a weighted average cost of capital of 13.2% using CAPM
Software companies are generally characterized as “high beta” businesses and most carry little
to no debt
Unlevered beta – the standard measure of the volatility of a security in comparison to the market as a
whole – for the software industry was recently measured at 2.00 vs. market beta of .97
Lower betas typically are observed among companies with solutions that serve multiple
business sectors (e.g., insurance and brokerage), as opposed to a single industry vertical
Interest coverage ratios for these companies tend to be significantly higher than Navtech’s;
more than an average of 10x for Fair Isaac, JDA and Sapiens
The WACC assumes a target leverage of 12%, which reflects the average of the comparable
group and is significantly lower than the Company’s current estimated 75% debt/capital ratio
Per Navtech’s Jan 31, 2007 filing, the interest rate on the Company’s senior subordinated notes
was recently raised to 13% from 12.5%; assuming a lower debt/capital ratio, we have used
12.0% as the effective cost of debt
Based on these assumptions, JEGI’s DCF yields an enterprise valuation of $33.7 million
This implies Enterprise Value to 2007F Revenue and EBITDA multiples of 0.8x and 8.6x,
respectively
* Industry betas sourced from Damodaran Online, http://pages.stern.nyu.edu/~adamodar/
DCF VALUATION ASSUMPTIONS (CONT’D)
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Navtech, Inc. Valuation
CONFIDENTIAL
DCF ANALYSIS
Navtech Inc.
Discounted Cash Flow Model (000s)
Fiscal Year End Oct 31
2007
2008
2009
2010
2011
2012
'08- '12
($ in 000)
Forecasted
Projected
Projected
Projected
Projected
Projected
CAGR
Navtech Revenue
41,504
44,804
48,612
52,987
56,961
59,809
7.5%
Annual Revenue Growth Rate
7.7%
8.0%
8.5%
9.0%
7.5%
5.0%
Navtech Gross Profit
19,538
21,506
23,334
25,964
28,481
29,905
Gross Profit Margin
47.1%
48.0%
48.0%
49.0%
50.0%
50.0%
Total Navtech Adj. EBITDA
3,927
3,922
4,861
6,623
7,975
8,971
23.0%
EBITDA Margin
9.5%
8.8%
10.0%
12.5%
14.0%
15.0%
Projected Depreciation & Amortization
(2,751)
(1,468)
(1,656)
(1,854)
(2,059)
(2,271)
Projected Taxable Operating Profit
1,175
2,454
3,205
4,770
5,915
6,700
28.5%
Assumed Tax rate
33%
33%
33%
33%
33%
33%
Net Operating Profit After Tax
787
1,644
2,147
3,196
3,963
4,489
Est. Cash Earnings
3,539
3,112
3,804
5,049
6,023
6,760
Investments in Net Working Cap
(1,625)
(429)
(495)
(569)
(517)
(370)
Capital Expenditures
(2,380)
(1,484)
(1,551)
(1,627)
(1,697)
(1,747)
Navtech Proj. Free Cash Flow
(466)
1,199
1,758
2,853
3,809
4,643
40.3%
FCF Growth
NM
46.6%
62.3%
33.5%
21.9%
Cost of Capital
13.2%
Terminal Value Calculation
PV FCF Through 2012
8,752
Terminal Value 2012 dollars
46,325
Plus: PV Terminal Value
24,930
Terminal Value 2007 dollars
24,930
Enterprise Value
$33,682
25
Navtech, Inc. Valuation
CONFIDENTIAL
COST OF CAPITAL CALCULATION
Cost of Capital Calculations
Target Leverage (L)
12.00%
R
D
12.00%
Long-term treasuries
4.60%
Inflation Rate
3.56%
Risk-free rate
3.60%
E[r
m
] - r
f
7.40%
t
C
33.00%
T*(def)
11.70%
Unlevered Betas of Industry Comps
Adjusted Beta, ß
E
L
Debt ($ Millions)
Market Val Equity
($ Millions)
D/V
L
ß
E
U
Fair Isaac Corp.
0.97
470
2,012
18.9%
0.84
Jack Henry
1.36
51
2,305
2.1%
1.34
JDA Software
1.63
106
614
14.7%
1.44
Sapiens International
0.63
24
51
32.1%
0.50
Eclipsys Corporation
1.10
0
1,224
0.0%
1.10
Navteq Corporation
2.14
0
6,041
0.0%
2.14
SPSS, Inc.
1.70
150
780
16.1%
1.48
Average estimated ß
E
U
=
1.26
Relevered Beta
ß
^
E
L
=
1.39
Return on Levered Equity
r
^
E
L
=
13.90%
WACC Calculation
WACC =
13.19%
Note: Levered company betas sourced from Capital IQ, Yahoo! Finance and Value Line
26
Navtech, Inc. Valuation
CONFIDENTIAL
IMPORTANT VALUATION CONSIDERATIONS
Given that the majority of Navtech stock is concentrated in a few shareholder groups and that the
stock is thinly traded and has no following in the investment community, we believe that comparable
public company multiplies do not provide an accurate benchmark for assessing Navtech’s value
With respect to recent transactions, many of the target companies have primarily been application
software providers, rather than companies with both data, print and software services components
and, therefore, may not be useful in establishing a valuation range for Navtech based on transaction
multiples
Excluding revenues from EAG, Navtech’s base business appears to have exhibited flat growth trends
for the FY2005 – FY2006 period
It is early to judge the merits of Navtech’s EAG acquisition and its impact on the Company’s long-
term revenue and cash flow growth rates
Navtech faces a significantly larger and well-capitalized competitor (Jeppesen/Boeing) against which
the Company may have difficulty competing in the future given the cash flow constraints resulting
from its current debt obligations
With the increasing pervasiveness of digitized information across most business sectors, barriers to
entry in Navtech’s market may weaken in the future
We assume a 33% combined statutory tax rate which reflects the average tax rate of the jurisdictions
within which the Company operates*
* Without additional information regarding change of control triggers and the likelihood of Navtech’s realizing future benefit from its deferred tax assets, we have not
considered these in our current model.
27
Navtech, Inc. Valuation
CONFIDENTIAL
EQUITY VALUATION RANGE
As of August 30, 2007, Navtech’s stock
closed at an equity price per share of $1.90
The simple 10-day moving average for
Navtech’s stock as of August 30th was $1.87
Navtech DCF enterprise value of $33.7
million yields a per share equity value of
$1.76, a 7% discount to the $1.90 Aug. 30th
stock price
For the fully diluted share count calculation,
JEGI assumes the conversion into common
shares of the estimated 312,00 of Notes
Payable Warrants and the 404,000 of
management and other options, for a total
common share count of 5.1 million
Navtech’s 1.6 million shares of convertible
preferred stock convert into an equivalent
number of common shares at a $2.50
conversion price, and, therefore, have not been
included in our fully diluted value per share
calculation
The 100,000 preferred stock warrants struck at
$3.00 per share have also been excluded
The above Cash and Debt amounts reflect actual amounts as of the issuance of this
report and have either been confirmed by management. Share calculations were based
on information sourced from the Company’s public filings. Amounts reported in
Kronor were converted at: 1 SEK = 0.144 USD.
Equity Value Calculation ($ in 000)
Undiluted
Fully Diluted
Enterprise Value
33,682
33,682
PV Contingent Acquisition Liability
3,782
3,782
Debt
22,785
22,785
Cash
4,300
4,300
Assumed Cash From Exercise of Options
-
424
Net Debt
18,485
18,061
Preferred Stock
3,706
3,706
Navtech Equity Value
7,710
8,134
Share No. Calculation (in 000)
No. Shares Outstanding (as of July 31)
4,380
4,380
Conversion of Series A Preferred
-
-
Conversion of Notes Payable Warrants
-
312
Conversion of Stock Options
-
404
Total Shares
4,380
5,096
Navtech Equity Value Per Share
1.76
1.60
28
Navtech, Inc. Valuation
CONFIDENTIAL
EQUITY VALUATION RANGE (CONT’D)
An undiluted, DCF equity value per share of $1.76, or a fully diluted value per share of $1.60, for Navtech equates to
an enterprise value to 2007F EBITDA multiple of 8.6x
Given the Company’s current challenges and opportunities, we believe our DCF value is the most illustrative of the
valuation techniques summarized in this report
Based on our conservative cost and WACC assumptions, Navtech would have to generate 10%+ compound annual revenue growth
over the forecast period to achieve an enterprise valuation that equates to 9.2x or higher EBITDA multiple
The following table illustrates the range of enterprise value to 2007F EBITDA multiples for fully diluted per share
equity values ranging from $1.25 – $2.50
As indicated below, JEGI’s calculated $1.60 fully diluted per share equity value falls within the 8.5x and 8.8x enterprise
value to EBITDA range
Fully Diluted Equity Per Share Values & Corresponding Enterprise Value /
2007F EBITDA Multiples
2007F EBITDA ($ Millions)
3.9
3.9
3.9
3.9
3.9
3.9
EBITDA Multiple
8.1x
8.5x
8.8x
9.1x
9.4x
9.8x
Enterprise Value ($ Millions)
31.9
33.2
34.5
35.7
37.0
38.6
Debt
22.8
22.8
22.8
22.8
22.8
22.8
Cash
4.7
4.7
4.7
4.7
4.7
4.7
Convertible Preferred
3.7
3.7
3.7
3.7
3.7
-
Equity Value ($ Millions)
6.4
7.6
8.9
10.2
11.5
16.7
No. of Fully Dil. Shares (Millions)
5.10
5.10
5.10
5.10
5.10
6.70
Fully Diluted Equity Value Per Share ($)
1.25
1.50
1.75
2.00
2.25
2.50
Note: The above analysis assumes that all of the 1.6 million shares of convertible preferred convert at $2.50, and that, at the time of
conversion, there are no unpaid dividends owing to convertible preferred holders.
29
Navtech, Inc. Valuation
CONFIDENTIAL
150 East 52nd Street 18th Floor
New York, NY 10022
Phone: (212) 754-0710
Fax: (212) 754-0337
www.jegi.com
Valuation Report
Prepared For
September 2007
Confidential
30
Navtech, Inc. Valuation
CONFIDENTIAL