Momentex LLC
Executive Summary
Imagine ... you have been driving along a toll road, and you are thirsty. As you approach a service area, you consider stopping for a beverage. However, when you think about the time getting off the highway will add to your trip, you decide to forego the 10-minute detour and to continue driving, thirst unquenched. ... As you pay your toll, you notice that you have the option of using the Gulp & Go sm service to purchase a cool beverage, pay for the drink and the toll at the same time, and have it dispensed to you right at the tollbooth. You have your money in your hand, and the drinks look refreshing. Just think .. would you buy? Momentex has identified a significant market opportunity and developed a new service designed to capture this market as the first mover. The market has a huge global potential... even with only 10 percent of U.S. toll road users purchasing a beverage, annual revenue opportunities are over $600 million. Gulp & Gosm, a Momentex service, provides automated beverage ordering, billing and delivery at tollbooths and other locations where a driver is already engaged in a monetary transaction. This high-tech beverage distribution system adapts existing technologies to meet the needs (convenience, speed, safety, capacity, and software interface) of toll road operators and drivers. Momentex oversees the driver-interface retailing operations while outsourcing some functions, such as dispenser refilling. Momentex provides public relations and marketing services to facilitate adoption of Gulp & Go and to increase usage rates, comprehensive customer service, which creates a feedback loop to ensure continual usage, and systems integration, to design the service process. The chart below summarizes the Gulp & Go service package. (1) Momentex develops and manages the tollbooth beverage system, working with toll road operators and systems integrators (2) Momentex contracts with a wireless data service for remote audit and inventory control (3) Momentex analyzes data received via the internet and relays information for beverage management (4) Momentex supervises the out-sourced beverage management process Market Potential. In a more conservative estimate, based on a purchase rate of 2%, a beverage can price of $1.25, and the 4.25 billion annual U.S. toll transactions, annual revenue is estimated at $128 million 1. Purchase rate per tollbooth with Gulp & Go service
Service availability Annual Revenue Potential ($MM) % of total tollbooths
40% 30% 20% 10% 5%
$128 $96 $64 $32 $16 5%
$255 $191 $128 $64 $32 10%
$510 $383 $255 $128 $64 20%
$765 $574 $383 $191 $96 30%
$1,020 $765 $510 $255 $128 40%
Gulp & Go Potential. In addition to the share of the U.S. market Momentex captures as a first mover, there is significant international expansion potential as well as additional revenue opportunities from advertising on the dispensers and exclusive contracts with beverage companies that can garner "rights-fees." Momentex also anticipates that its proprietary distribution system will provi de a platform for other driver-interface retailing opportunities, such as at the gas pump or parking garage. Profitability and Attractive Cash Flow. With attractive gross margins and significant volume, Momentex will ensure high profitability by minimizing operating costs through outsourcing non-core activities. As toll roads operate continuously and provide a constant flow of drivers, Momentex anticipates that its Gulp & Go business model will provide consistent and high cash flows. Momentex anticipates annual revenue growth of 342% (6-year CAGR) and an EBITDA after year 6 of $39.3 million. Income Statement
1999 Revenues Beverage Sales Commissions and Sales Tax Total Revenues Expenses Raw Materials Operating Expenses Research and Development Total Expenses Operating Profit Taxes Net Profit 12,112 374,939 469,500 854,051 742,924 4,534,601 400,000 6,458,376 8,939,114 400,000 16,300,755 9,297,322 400,000 25,998,078 28,493,018 18,081,299 8,041,672 400,000 26,522,971 33,920,229 19,954,005 8,417,283 400,000 28,771,288 37,932,100 50,465 (11,102) 39,363 3,095,518 26,909,900 69,860,379 77,491,282 85,517,164 2000 2001 2002 2003 2004
(681,014) (5,920,178) (15,369,283) (17,048,082) (18,813,776) 2,414,504 20,989,722 54,491,095 60,443,200 66,703,388
5,677,526 15,797,490 5,192,231
(814,688) (3,263,022) 276,994
1,109,427 (1,765,359) 3,426,873
(9,687,626) (11,532,878) (12,896,914) 18,805,392 22,387,351 25,035,186
(537,694) (2,153,594)
Trends. Momentex has designed its Gulp & Go service to capitalize upon three key trends: (1) drivers are increasingly willing to utilize services that provide higher levels of convenience; (2) as toll road operators become more profit-minded and less
bureaucratic, they are searching for new business opportunities that will both boost their profits and enhance customer satisfaction; and (3) intense competition amongst beverage companies has led these companies to place an increasing importance on impulse (single-serving) distribution channels. Value to Customers. Gulp & Go is attractive to drivers, toll road operators, and beverage companies. Drivers value Gulp & Go's convenience and time-saving attributes. Gulp & Go enables toll road operators to increase profitability and customer satisfaction. Momentex expects beverage companies to welcome the opportunity to increase sales and to gain access to customers without having to develop in-house knowledge of toll systems. Venture Strategy. Momentex will first secure a demonstration site at a smaller toll road and then roll out Gulp & Go service on commercially attractive tollbooth locations throughout the United States. In the medium term, Momentex will expand its services by developing other Gulp &Go platforms and extend its product range beyond beverages. Momentex's long-term objectives are to develop additional driver-interface retailing opportunities by anticipating the advent of various wireless technologies. Management Team. The Momentex team consists of professionals with experience in financial advisory, strategy, business development, service process management, and transportation industries. Melissa Chadwick -- As President and CFO, Ms. Chadwick focuses on business development, financing and marketing. She has several years of corporate finance and financial advisory experience and an MBA from The Wharton School. Zafar Khan - As Chief Executive Officer, Mr. Khan focuses on business development and operations. He has several years of strategy, public affairs and industry experience and an MBA from The Wharton School. David Smith - As Director of Operations, Mr. Smith is actively engaged in developing prototype hardware and optimizing the service process. He has several years of strategy and process management experience and will graduate in 1999 with an MBA from The Wharton School. Paul Glaab - As Director of Channel Development, Mr. Glaab will be responsible for developing political strategy and gaining footholds within toll agencies. He has 30 years of experience working in channel development and government affairs for the California DOT, a California toll road agency, and the international toll road association (IBTTA). (Contract under negotiation.) In addition, Momentex has established a network of experts who advise in areas such as (1) automated product delivery, (2) system development and integration, (3) entrepreneurship, (5) traffic modeling, and (6) toll industry dynamics. Funding Needs. Momentex has begun preliminary negotiations for a demonstration site with two private toll roads, the Dulles Greenway (located in Vi rginia) and Transportation Corridor Agencies (located in California). To secure approval for a demonstration site, Momentex anticipates that a physical demonstration of prototype
hardware will be necessary and seeks capital to fund the research and development expenses associated with the prototype and ensuing pilot operation. Required Investment and Use of Capital. Momentex seeks a commitment of $2 million to fund prototype hardware and software development, system integration, educational marketing, operating expenses, and legal fees for a demonstration site and pilot operation. This investment would position the Company to roll out operations to the major toll roads. Exit Strategy. Momentex plans to grow the business until it is well received by public markets, then use an IPO as an exit. A second exit opportunity is through strategic buyers such as beverage or toll service companies. Headquarters. 34 Lee Street, Cambridge, MA 02139. Telephone: 877.868.4857. Gulp & Gosm Highlights Strong Financial Potential Huge, untapped market - - 4.25 billion potential purchase opportunities in the United States High gross margin, high volume Scaleable operations - - nationally, internationally High, predictable cash flows - - revenue potential of $600 million at 10% hit rate Additional revenue streams from advertising and "rights fees" IPOable business based on comparable public companies
High Return on Investment Early revenue stream Low capital investment High exit potential - - value multiples will "leap" after Momentex achieves operational milestones (securing contracts, proof of concept, beginning operations).
Low Marketing Costs High visibility and exposure to target customers 24-hours/day, 7-days per week Captive customer base Low cost method of creating brand recognition - - Momentex is essentially buying access to customers from toll roads by giving the roads a percentage of revenues. Momentex's proposed commission structure is based on amount of purchases, rather than on total driver exposure.
Unique Service Aspects Service process and specialized hardware is patent pending Captures a new piece of point-of-sale retail real estate with guaranteed customer flow
Establishes a new distribution channel - - potential to sell and introduce other products Meets a basic consumer need - Improves customer satisfaction and driving experience Essential but non value-added functions can be outsourced
Attractive Investment Opportunity Feasible business model - - tangible, new integration of off-the-shelf technology Low risk, high growth potential with long-term contracts - - once operations are proven and adopted High visibility business Innovative new concept - - rewarding
Uses of Capital Securing commitment from toll road executives Negotiations with multiple parties Hardware and software development Developing and testing demonstration site Demonstrating insignificant traffic impact Developing and testing early adopter pilot operations Educating drivers about the service
1 Transaction estimate Intelligent Transportation Systems 1998