Upbound Group, Inc. · NASDAQ:UPBD
Upbound — Rent-A-Center — Investor Presentation (August 2003)
33 slides from Upbound's investor presentation, Aug 22, 2003
Slide 1: Investor Presentation Second Quarter 2003
Investor Presentation Second Quarter 2003 August 22, 2003
Slide 2: Key Investment Rationale
Key Investment Rationale Leading rent-to-own operator in the U.S. Proven business model Multiple growth drivers Consistent growth in any economic environment Predictable revenue stream Strong cash flow generation Experienced management team 1
Slide 3: Leading RTO Operator in U.S.
Leading RTO Operator in U.S. Largest rent-to-own operator in the U.S. — 31% market share based on 2,567 store count as of 6/30/03 — ColorTyme subsidiary represents an additional 4% market share Broad selection of high quality goods through flexible rental agreements — Home electronics – 41% of r
Slide 4: Dominant Player in Fragmented Marketplace
Dominant Player in Fragmented Marketplace 8,300 Stores (1)(1) 3,000 2,888 3,500 + Stores 321 2,500 43% Number of Stores 2,000 2,567 7 largest Firms 1,500 57% 1,000 753 752 500 123 89 69 48 0 Rent-A-Center / Rent-Way (3) (3) Aaron Rainbow Rent Rite Rental Bestway (6) (6) Ace TV ColorTyme (2) (2) Rent
Slide 5: Leading National Footprint
Leading National Footprint 2,567 company-owned stores and 321 franchised stores 50 Get It Now 8 1 32 30 4 67 16 10 56 4 23 135 Company-owned 5 113 15 21 104 35 New Store Openings 9 24 162 129 112 17 48 2002A 2Q03 YTD 2003E 18 38 16 159 58 62 48 65 45 70 38 80 4 119 62 53 91 Acquisitions - Store Fron
Slide 6: Rent-to-Own is an Appealing Transaction
Rent-to-Own is an Appealing Transaction… Flexible Rental Agreements Lifetime No Purchase Reinstatement Obligation Satisfies Return Short Term Merchandise Purchase Needs Anytime Same Day 18 – 24 Months Delivery Term to Ownership No Traditional No Down Credit Check Payment 5
Slide 7: With Attractive Economics
…With Attractive Economics … Total Rental Gross Monthly Revenue Stream Revenues COGS Margin Buy Upfront $800 400 50.0% Rent-To-Own $1,600 400 75.0% $1,780 400 77.5% Rent-To-Own (Average (Average Contract Contract Life) Life) 0 2 4 6 8 10 12 14 16 18 20 22 Months 6
Slide 8: Consistent Industry Growth
…Consistent Industry Growth… 7 GR 6.3% CA $6.0 $5.6 6 $5.3 $5.0 $4.4 $4.7 5 $4.1 $3.9 $ in billions 4 3 2 1 0 1995 1996 1997 1998 1999 2000 2001 2002 Source: Source: APRO APRO 2003 2003 Industry Industry Survey Survey 7
Slide 9: Six Levers of Growth
Six Levers of Growth Open New Stores Acquire Existing Rent-to-Own Stores — Storefronts — Customer Accounts Grow Same Store Sales — Merchandise Mix — Agreements per Customer — Customer Growth 8
Slide 10: In Any Economic Environment
…In Any Economic Environment Late 1990’s Economic Boom $0.60 $0.52 $0.52 $0.46 $0.46 Thorn Integration(1) Thorn Integration (1) $0.41 $0.41 $0.40 $0.34 $0.34 $0.35 $0.35 $0.31 $0.27 $0.29 $0.31 $0.29 $0.30 $0.30 $0.29 $0.29 ($) $0.27 EPS ($) $0.25 $0.25 $0.21 $0.22 $0.21 $0.22 EPS $0.19 $0.19 $0.20
Slide 11: Serves the Underbanked Working Family
Serves the “Underbanked Working Family” 92% of Customers in the Industry have Household Incomes between $15,000 and $50,000(1) 45 million Households with Household Incomes between $15,000 and $50,000(2) Industry is Serving only 2.9 million of these Households(3) Great Market Opportunity Note
Slide 12: Proven Business Model
Proven Business Model Key Brands and Attractive Stores Systems Employee Training and Development Customer Relationship 11
Slide 13: Rent-A-Center Store Profitability vs. Peers
Rent-A-Center Store Profitability vs. Peers Monthly Revenue Gross Profit Margin $100,000 $100,000 27.4 % 100% 100% 570 bps $80,000 $80,000 $72,000 75.1% 75.1% $72,000 80% 80% 69.4% 69.4% $60,000 $56,500 $56,500 $60,000 60% 60% $40,000 $40,000 40% 40% $20,000 $20,000 20% 20% $0 $0 0% 0% Store Operati
Slide 14: Easily Accessible, Highly Visible Sites
Easily Accessible, Highly Visible Sites Leased Sites Only 13
Slide 15: Spacious Showroom Interior
Spacious Showroom Interior No Warehouses - Vendors Ship Directly to the Stores 14
Slide 16: High Quality, Brand-name Merchandise
High Quality, Brand-name Merchandise Electronics Furniture Appliances Computers 41% of Rental 33% of Rental 16% of Rental 10% of Rental Revenue Revenue Revenue Revenue Actual Actual data data for for the the twelve twelve months months ended ended June June 30, 30, 2003 2003 15
Slide 17: State-of-the-Art Systems Capabilities
State-of-the-Art Systems Capabilities Inventory InventoryAnalysis Analysis Daily reports at all levels of BOR BOR&&Credit CreditAnalysis Analysis organization from store manager to Chairman/CEO Store StoreIncome IncomeAnalysis Analysis Manage by exception philosophy Exceptions ExceptionsReport R
Slide 18: Strategic Objectives
Strategic Objectives Improve Store Level Profitability Open New Stores Acquire Existing Rent-to-Own Stores Grow Same Store Sales Enhance National Brand 17
Slide 19: Significant Market Opportunity
Significant Market Opportunity 16,000 6,000 14,000 New 12,000 Number of Stores Store Opportunity 10,000 3,578 8,000 Mom & Pop 6,000 1,834 4,000 2,888 Top 6 Competitors 2,000 0 Current Landscape 18
Slide 20: Strong New Store Economics
Strong New Store Economics Start-up investment of approximately $450,000 (2/3 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 Revenues $400,00
Slide 21: Enhancing National Brand
Enhancing National Brand High brand awareness through comprehensive national and spot media Multi-cultural appeal Educate consumers about RTO alternative and the availability of quality merchandise Loyalty program NASCAR sponsorship 20
Slide 22: Experienced Management Team
Experienced Management Team Senior management team is the most experienced in RTO industry — CEO Mark Speese has nearly 25 years RTO experience — President Mitch Fadel has over 20 years of RTO experience — Senior executives average over 10 years of RTO experience Attracting the best personnel wi
Slide 23: Financial Overview
Financial Overview
Slide 24: 2Q03 Review
2Q03 Review Revenue Gross Profit $700 $450 11.8% % $600 $553.3 10.2 $408.6 $494.7 $400 $500 $370.9 $400 $350 $300 $200 $300 2Q'02 2Q'03 2Q'02 2Q'03 EBITDA $60 Net Income(1) $140 % $120 10.7% 16.5 $52.3 $52.3 $111.4 $50 $100.6 $44.9 $100 $40 $80 $30 $60 $40 $20 2Q'02 2Q'03 2Q'02 2Q'03 2Q'03 EBITDA Ma
Slide 25: Strong, Consistent Sales Growth
Strong, Consistent Sales Growth 2,400 $2,225 R AG Combined Revenue ($MM) 2,200 C 12% $2,010 2,000 $1,809 1,800 $1,602 1,600 $1,417 1,400 1,200 1,000 1999 2000 2001 2002 2003 Midpoint of Store Revenue Franchise Revenue Guidance 24
Slide 26: Consistent Growth in Same Store Sales
Consistent Growth in Same Store Sales 2,600 2,567 2,542 2,500 2.7 2,407 6.2 # of Stores 2,400 2,300 2,281 6.0 2,200 2,158 8.0 2,100 2,071 12.6 7.7 2,000 1999 2000 2001 2002 1Q'03 2Q'03 # of Stores Same Store Sales Growth % 25
Slide 27: Current Capital Structure
Current Capital Structure Jun 30 % of Book Jun 30 % of Book 2002 Capital 2003 Capital Cash & Equivalents $93.8 N/A $248.3 N/A Senior Credit Facilities 300.0 22.2% 400.0 25.0% Subordinated Notes 274.5 20.4% 384.5 24.1% Total Debt 574.5 42.6% 784.5 49.1% Shareholders’ Equity 774.3 57.4% 812.9 50.9% To
Slide 28: Recapitalization - Complete
Recapitalization - Complete New Structure Mar 31 New 2003 Structure (millions) (millions) Senior Credit Facilities $249.5 $400.0 Subordinated Notes 271.8 300.0 Total Debt $521.3 $700.0 Leverage Ratio 1.2 1.6 Accretive Transaction Reduced interest expense 3.2 million shares repurchased between late J
Slide 29: Schedule of Free Cash Flow
Schedule of Free Cash Flow 2003 Estimate 2003 EBITDA $430MM - $440MM Net Cash Interest ($45MM) CapEx ($50MM) Net Investment in ($40MM) Rental Merchandise Taxes ($100MM) Free Cash Flow $195MM - $205MM Free Cash Flow Yield of Approximately 8% 28
Slide 30: Demonstrated Ability to Delever Rapidly
Demonstrated Ability to Delever Rapidly ($MM) 1,000 7.0x $805.7 $847.2 6.0x 6.0x 800 $741.1 $702.5 5.0x 600 $521.3 4.0x Multiple 3.4x 3.0x 400 2.4x 2.3x 1.3x 2.0x 200 1.0x 0 0.0x 1998 1999 2000 2001 2002 Total Debt Total Debt / EBITDA (1) Note: Note: (1) (1) Excludes Excludes nonrecurring nonrecurri
Slide 31: 2003 Guidance
2003 Guidance QUARTERLY 3Q’02 3Q’03* Growth Total Revenue $494.6MM $546.0-551.0MM 10-12% Diluted EPS $1.14 $1.42-$1.44 24-26% ANNUAL 2002 2003* Growth Total Revenue $2.01BN $2.21-2.24BN 10-12% Diluted EPS $4.82** $5.80-$5.90 20-22% * Includes the Rent-Way acquisition of 295 stores ** Excludes $2.9M
Slide 32: Key Investment Rationale
Key Investment Rationale Leading rent-to-own operator in the U.S. Proven business model Multiple growth drivers Consistent growth in any economic environment Predictable revenue stream Strong cash flow generation Experienced management team 31
Slide 33: Safe Harbor Statement
Safe Harbor Statement This guidance above contain forward-looking statements that involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipa