We believe shares of Fleetmatics Group PLC (“the company”, or “FLTX”) are grossly overvalued, reflecting few, if any, of the serious risks that warrant questioning the credibility of the company’s financial statements. In this report, we discuss the company’s use of various accounting shenanigans that inflate profitability, the material weaknesses in its internal controls, the inexplicable discrepancies between related accounts in its financials, and Fleetmatics’ founding backer’s ties to a previous accounting fraud. According to our analysis, Fleetmatics’ 2012 gross margin was inflated by 400bp and reported Adjusted EBITDA and Adjusted EPS were overstated by 27% and 33%, respectively. Going forward, we believe the company faces many headwinds, with its vehicle churn rate set to continue accelerating in 2H’13 and beyond; as churn picks up, FLTX is forced to accelerate its deferred costs, potentially resulting in both a revenue and a margin contraction problem, at the same time. We believe the company has presented itself to the investing public in a highly questionable manner and that, as a result, it has been successful in its efforts to inflate its stock price beyond any reasonable measure of valuation, enabling its insiders to cash out big before the cards come tumbling down. Based on our analysis, Fleetmatics’ stock has an intrinsic value of ~$11-$12 per share, ~75% below current trading levels.
