Upbound Group, Inc. · NASDAQ:UPBD
Upbound — Rent-A-Center — Q2 2008 Earnings Presentation
26 slides from Upbound's earnings presentation, Jul 29, 2008
Slide 1: Investor Presentation Second Quarter 2008
Investor Presentation Second Quarter 2008
Slide 2: Safe Harbor Statement
Safe Harbor Statement This presentation contains forward- forward-looking statements that involve risks and uncertainties. Such forward forward--looking statements generally can be identified by the use of forward- forward-looking terminology such as "may," "will," "expect," "intend," "could," "coul
Slide 3: Key Investment Rationale
Key Investment Rationale Leading rent-to-own operator in the U.S. Proven business model Experienced management team Financially solid z Strong cash flow generation z Sound balance sheet and strong credit statistics Continue execution in our core rent-to-own business Growth opportunity ad
Slide 4: Leading RTO Operator in U.S.
Leading RTO Operator in U.S. Largest rent-to-own operator in the U.S. z 40% market share based on store count z National footprint of over 3,000 company owned stores and over 225 franchised stores Broad selection of high quality, brand-name merchandise under flexible rental purchase agreements
Slide 5: Leading Player in Fragmented Marketplace
Leading Player in Fragmented Marketplace 8,220 Stores (1)(1) 4,500 Rent-A-Center 4,000 ~ 3,371 40% Stores 3,500 3,279 Number of Stores 41% 226 Aaron 3,000 3,053 Rents 2,500 19% 2,000 1,570 1,500 1,000 500 74 71 57 49 43 0 Rent-A-Center / Aaron Bestway (3) (3) Buddy’s Home Premier American Rent One (
Slide 6: Rent-to-Own is an Appealing Transaction…
Rent-to-Own is an Appealing Transaction… No Down Payment Lifetime No Traditional Reinstatement Credit Check 90 Days Same No Long Term as Cash Flexible Obligation Rental Agreements Service 7 – 36 Months Included Term to Ownership Same Day Early Delivery Purchase Options 5
Slide 7: …Serving the “Underbanked Working Family”…
…Serving the “Underbanked Working Family”… 75% of customers in the rent-to-own industry have household incomes between $15,000 and $50,000 (1) Approximately 45 million households with household incomes between $15,000 and $50,000 (2) Industry is serving only 3.0 million of these households (3)
Slide 8: …With Attractive Economics
…With Attractive Economics Total Rental Gross Monthly Revenue Stream Revenues COGS Margin Buy Upfront $ 900 $ 450 50.0% Rent-To-Own $ 1,800 $ 450 75.0% Rent-To-Own $ 2,000 $ 450 77.5% (Average (Average Contract Contract Life) Life) 0 2 4 6 8 10 12 14 16 18 20 Months 7
Slide 9: Proven Business Model
Proven Business Model Key Brands and Attractive Stores Employee Training Systems and Development Customer Relationship 8
Slide 10: Easily Accessible, Highly Visible Sites
Easily Accessible, Highly Visible Sites Leased Sites Only No Warehouses – Vendors Ship Directly to the Stores 9
Slide 11: High Quality, Brand-Name Merchandise
High Quality, Brand-Name Merchandise Furniture Electronics Appliances Computers 34% of Rental 34% of Rental 16% of Rental 16% of Rental Revenue Revenue Revenue Revenue 40% 30% 20% 10% 2002 2003 2004 2005 2006 2007 Q1'08 Q2'08 Electronics Furniture Appliances Computers Actual Actual data data for for
Slide 12: Experienced Management Team
Experienced Management Team Senior management team is the most experienced in RTO industry z CEO Mark Speese has over 29 years of RTO experience z President Mitch Fadel has over 25 years of RTO experience z Senior executives average over 15 years of RTO experience Attracting the best personnel w
Slide 13: Strategic Objectives
Strategic Objectives Enhance store level operations, revenue and profitability z Focus on our customers and their in-store experience z Improve operational efficiencies z Maintain expense control Growth opportunity adding financial services within our existing store locations Focus on de-lever
Slide 14: Rent-to-own - Strong New Store Economics
Rent-to-own - Strong New Store Economics Start-up investment of approximately $500,000 (3/4 for inventory) Begin turning a monthly profit in approximately nine months Cumulative break even within 18–24 months (1) (1) Internal Rate of Return of approximately 50% Year 1 Year 2 Year 3 Year 4 Ye
Slide 15: Financial Services – Business Rationale
Financial Services – Business Rationale Financial Services Industry z High growth – analyst estimate of high single digit store growth z Fragmented – similar to rent-to-own 25 years ago z Customer within RAC’s national footprint z Attractive economics RAC’s Strengths z Developing ongoing and las
Slide 16: Financial Services – Measured Approach Implementation
Financial Services – Measured Approach Implementation Product offerings – primarily include deferred deposit and unsecured loans, check cashing, money transfers and money orders, debit cards and tax preparation Focusing on states that have enabling legislation Continue to fine-tune processes z
Slide 17: Financial Services - Strong New Store Economics
Financial Services - Strong New Store Economics Start-up investment of approximately $100,000 – 50% capex, 50% loan funding Begin turning a monthly profit in approximately one year Cumulative break even in approximately 2.5 years (1) Internal Rate of Return of approximately 55% (1) Year 1 Ye
Slide 18: Financial Overview
Financial Overview 17
Slide 19: Combined Revenue ($MM)
Sales Growth $3,200 CA GR $3,000 5.5% $2,906 $2,890 – $2,920 $2,800 Combined Revenue ($MM) $2,600 $2,434 $2,400 $2,313 $2,339 $2,228 $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 2003 2004 2005 2006 2007 2008P Store Revenue Franchise Revenue 18
Slide 20: Same Store Sales Growth
Same Store Sales Growth 4.0% 3.6% 3.6% 2,341 2.9% 2.9% 2.8% Same Store Sales Growth 2.7% 2.7% 2.8% 3.0% 2,371 2,336 2,364 1.8% 1.8% 2.0% 2,346 1.1% 1.1% 1.0% 1.0% 1.0% 1.0% 0.9% 0.9% 1.0% 2,313 2,243 2,042 2,440 0.0% Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 -1.0% 2,374 -2.0% -1.8%
Slide 21: EBITDA and EBITDA Margin
EBITDA and EBITDA Margin ($MM) $600 $500 $388.3 ~ $390.0 $400 $356.5 $327.2 13.4% 13.4% 13.3% 13.3%-- 13.5% 13.5% 14.6% 14.6% $300 14.0% 14.0% $200 $100 $0 2005 2006 2007 2008P EBITDA (1) (1) EBITDA Margin % (1) (1) Excludes Excludes non-recurring non-recurring charges charges and and credits credit
Slide 22: Operating Cash Flow
Operating Cash Flow ($MM) $450 $400 $350 ~ $330.0 $300 $240.4 $250 $187.9 $187.4 $200 $150 $100 $50 $0 2005 2006 2007 2008P 21
Slide 23: Schedule of Free Cash Flow 2008 Estimate ($MM)
Schedule of Free Cash Flow 2008 Estimate ($MM) EBITDA $390 OPERATING CASH FLOW $330 Net Cash Interest ($60) CapEx ($70) CapEx ($70) Working Capital ($0) Taxes ($0) Free Cash Flow $260 Free Cash Flow $260 Note: Potential uses of Free Cash Flow include acquisitions, reduction reduction in outstanding
Slide 24: Current Capital Structure
Current Capital Structure % of % of Jun 30 Book Jun 30 Book (in millions of dollars) 2008 Capital 2007 Capital Cash and Equivalents $75.1 N/A $79.0 N/A Senior Credit Facilities 788.0 37.9% 933.0 42.3% Subordinated Notes 270.4 13.0% 300.0 13.6% Total Debt 1,058.4 50.9% 1,233.0 55.9% Shareholder's Equ
Slide 25: Guidance (per July 28, 2008 press release)
Guidance (per July 28, 2008 press release) QUARTERLY Q3'08P Q3'07A Total Revenue $700.0 - $715.0 MM $705.8 MM (2) Adj. Diluted EPS $0.45 - $0.50 $0.33 (2) ANNUAL 2008P 2007A Total Revenue $2.89 - $2.92 BN $2.902 BN (2) Adj. Diluted EPS $2.20 - $2.30 (1) $2.01 (2,3,4,5) 1) Excludes the effects of a $
Slide 26: Key Investment Rationale
Key Investment Rationale Leading rent-to-own operator in the U.S. Proven business model Experienced management team Financially solid z Strong cash flow generation z Sound balance sheet and strong credit statistics Continue execution in our core rent-to-own business Growth opportunity ad