Stockholder issues letter to Franklin Wireless requesting the board return cash to shareholders in the form of a special dividend and a stock buyback. Sinnet Capital also urges the board to act as a public company by issuing Press Releases to widely available sources.

Rhea-AI Summary

Sinnet Capital Partners, along with Managing Partner Timothy Hasara, collectively own 380,000 shares or 3.2% of the outstanding shares of Franklin Wireless (NASDAQ: FKWL). The company has generated cash over time, growing from $12.9 million in March 2020 to $33.6 million at the end of September 2023. The stock performance has remained unchanged during this period. Franklin Wireless has no debt and approximately $2.86 per share in cash. Sinnet Capital Partners recommends a special dividend of $1.00 per share, a $10 million Dutch tender stock buyback, and hiring an IR firm for press releases.

Positive

• Positive cash generation of $33.6 million at the end of September 2023
• No debt and approximately $2.86 per share in cash
• Recommendations for a special dividend and stock buyback

Negative

• Unchanged stock performance despite cash generation

Insights

Financial Analyst

The recommendation by Sinnet Capital Partners for Franklin Wireless to pay a special dividend and execute a Dutch tender buyback indicates a strategy to enhance shareholder value. A special dividend would provide immediate returns to shareholders, potentially increasing the stock's attractiveness. The proposed $1.00 per share would represent a significant payout given the company's current cash per share standing at $2.86. Such a move could suggest that the company's board believes the stock is undervalued or that they are looking to return excess cash to shareholders rather than reinvesting it in the business.

The Dutch tender buyback, wherein shareholders are invited to sell their shares at a price within a certain range, indicates a proactive approach to capital management. A buyback can signal to the market that the company believes its shares are undervalued. Also, reducing the number of outstanding shares can improve earnings per share (EPS), potentially leading to a higher stock price. However, the efficacy of this action depends on the execution price relative to intrinsic value and market conditions.

Additionally, hiring an IR firm to enhance communication with investors reflects an intent to improve market perception and transparency, which could lead to a re-rating of the stock. Improved communication can also help in reducing information asymmetry and potentially increase investor confidence.

Market Research Analyst

Franklin Wireless's cash growth from $12.9 million to $33.6 million since the beginning of the COVID-19 pandemic without a corresponding increase in stock performance suggests a discrepancy between financial performance and market valuation. This scenario is often an opportunity for strategic corporate actions to unlock value. The company's no-debt status is a robust indicator of financial health, which combined with a significant cash reserve, provides flexibility for shareholder value propositions like dividends and buybacks.

However, the market's reaction to such financial engineering moves can be nuanced. While a special dividend and buyback could be perceived positively, signaling strong cash generation and a shareholder-friendly approach, it could also raise questions about the company's growth prospects and the ability to reinvest cash effectively for future growth. The long-term impact on the stock would therefore depend on investor sentiment regarding the company's growth trajectory and the use of its cash reserves.

Corporate Governance Expert

From a corporate governance perspective, the actions suggested by Sinnet Capital Partners, if adopted, could reflect a shift towards a more shareholder-centric approach. The issuance of a special dividend and implementation of a stock buyback program must be carefully considered by the Board of Directors in terms of their alignment with the company's long-term strategy and fiduciary responsibilities.

It is important to assess whether such distributions are a sustainable and prudent use of capital, especially in light of the company's future investment needs and market conditions. Moreover, the board must consider the potential impact on the company’s control dynamics, as a buyback could alter the shareholder structure. The recommendation to hire an IR firm also underscores the importance of effective communication with shareholders and the market, which is a key aspect of good corporate governance.

CLAYTON, Mo., Dec. 28, 2023 /PRNewswire/ -- Sinnet Capital Partners, along with Managing Partner Timothy Hasara, collectively own 380,000 shares or 3.2% of the outstanding shares of Franklin Wireless (NASDAQ: FKWL), and today issued the following public letter to the Company's Board of Directors: 

***

December 28, 2023
Franklin Wireless Board of Directors 
Gary Nelson, O.C. Kim, Kristina Kim, Heidy Chow, Jonathan Chase 

Dear Members of the Board, 

Franklin Wireless has generated cash over time, and specifically since the beginning of Covid. The cash has grown from $12.9 million in March 2020, at the beginning of the pandemic, to $33.6 million at the end of the most recent quarter, ending September 2023. However, the stock performance is basically unchanged since this period of time!

Franklin Wireless has no debt and approximately $2.86 per share in cash.

Shareholders should be rewarded with this cash generation – returned in the form of a special dividend and stock buyback.

Sinnet Capital Partners recommends the Board of Directors take the following actions: 

1. The company pays a special dividend of $1.00 per share.
2. The company executes a $10 million Dutch tender buyback of the stock. 
3. The company hires an IR firm to issue Press Releases for significant events and earnings filings. 

Franklin Wireless has had a number of great accomplishments over the last 12 months. However, investors have to reach far and wide to find out about these achievements. The company has been awarded four (4) contracts since last December that Sinnet Capital believes were significant, but they did not issue a Press Release in any of the national news services utilized by most investors.

The four contracts that were released only on their website are as follows: 

1. December 6, 2022 – Franklin Brings the First 5G Mobile Hotspot to Metro by T-Mobile 
2. December 12, 2022 – Franklin Wireless Launches Its First AT&T Mobile 4G Hotspot
3. February 8, 2023 – Franklin Wireless Introduces New 5G Hotspot with AT&T 
4. March 20, 2023 – Franklin 5G Mobile Hotspot Now Available Nationwide at T-Mobile 

Following the company for many years, I would note that AT&T and Metro by T-Mobile are new customers to Franklin Wireless. As evidenced from their most recent 10-Qs and 10-K, the business associated with these four contracts appears to be significant, warranting a widely distributed Press Release.

The 4^th quarter ending June 2023 was a great quarter, with revenue up 40% to $17 million and cash from operations up $5.16 million. Yet, the 10-K recently filed on September 28, 2023, does not break down the 4th quarter results and forces the investor to back into the numbers by reviewing the prior 10-Q filings. In addition, no Press Releases were issued breaking down the results for the 4th quarter and the fiscal year end. The fiscal year 2023 revenue increased 91% from $23,997,762 to $45,948,516. 

Franklin Wireless did issue Press Releases on a national news service in the past, GlobeNewswire, but stopped doing so in 2021. The stock closed the end of 2022 at $4.46 per share and the stock closed at $3.03 on December 22, 2023. Sinnet Capital believes the stock has not performed well over the last year, down primarily as the result of the company not issuing Press Releases regarding their contract announcements and earnings.

Sinnet Capital urges the board to pay a $1 special dividend, execute a $10 million dollar Dutch tender buyback and hire an IR firm to issue Press Releases.

Sincerely, 

Timothy Hasara
Managing Partner 
Sinnet Capital Partners

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SOURCE Sinnet Capital

FAQ

What is the cash generation of Franklin Wireless?

Franklin Wireless has generated $33.6 million in cash at the end of September 2023.

What recommendations has Sinnet Capital Partners made for Franklin Wireless?

Sinnet Capital Partners recommends a special dividend of $1.00 per share, a $10 million Dutch tender stock buyback, and hiring an IR firm for press releases.

How much cash does Franklin Wireless have per share?

Franklin Wireless has approximately $2.86 per share in cash.

What is the stock performance of Franklin Wireless?

The stock performance has remained unchanged despite the cash generation.

Does Franklin Wireless have any debt?

No, Franklin Wireless has no debt.