Usi Corporation · TWSE:1304
Usi — Investor Day (November 2004)
84 slides from Usi's investor day presentation, Nov 4, 2004
Slide 1: U.S.I. Holdings Corporation Investor Day Presentation
U.S.I. Holdings Corporation Investor Day Presentation November 3, 2004
Slide 2: Forward-Looking Statements
About ForwardLooking Statements This document and the related oral presentation include forwardlooking statements that are subject to a number of risks and uncertainties, many of which are beyond the control of U.S.I. Holdings Corporation, which may include statements . .I. about: its business strat
Slide 3: Webcast Participant Questions
Webcast Participant Questions If you have questions during the webcast, please email to: maria.slippen@usi.biz
Slide 4: USI Senior Management Team
USI Senior Management Team Name Position Industry Experience Age David Eslick Chairman, President and CEO 24 45 Tom O’Neil Chief Operating Officer 24 46 Jeff Jones Chief Marketing Officer 27 50 Bob Schneider EVP & Chief Financial Officer 26 50 Ed Bowler Senior VP, Corporate Development 17 48 Ernest
Slide 5: USI Profile
USI Profile A Market Leader 9th largest U.S. Broker based on 2003 revenues (a) Leading Benefits Broker (represents 42% of 2003 total revenues) National Scale with a Local Presence 67 Offices in 19 states 400+ sales professionals Approximately 60,000 commercial clients Middle Market Focus Approximate
Slide 6: Investment Highlights
Investment Highlights Achieve annual cash earnings growth of at least 15% Consistent organic growth through all market and economic cycles Diversified revenue mix Proven, proactive cross-selling capability Focused strategy for EBITDA margin expansion 21.7% in 2003 28% target Augment growth with accr
Slide 7: Revenue Diversity
Revenue Diversity Diversified Revenue Mix Property and Casualty 58% Group Employee Benefits 35% Specialized Benefits Services 7% Total 2003 Revenues = $355 MM National Scale and Local Presence USI West Coast 24% USI Midwest 7% USI Northeast 44% USI Southeast 16% USI Southwest 10% Corporate Retail Of
Slide 8: Key Accomplishments Since IPO
Key Accomplishments Since IPO Objectives De-leverage balance sheet Clean operational and financial results 5%—10% organic revenue growth over the long term EBITDA margin expansion Acquire $25 million of annualized revenue in 2003 Acquire 10% of prior year’s revenue ($35 million) Results Debt/capital
Slide 9: Business Plan December 2003
U.S.I. Holdings Corporation Business Plan December 2003
Slide 10: Business Planning Process
Business Planning Process What is your purpose? Evaluate the market Determine how to win in the market Establish goals and objectives Identify the key strategies What are the risks? Communicate to all associates Measure leading indicators on a consistent basis React to changes to maximize achievemen
Slide 11: Statement of Purpose
Statement of Purpose Mission: The leading distributor of fully-integrated risk management, health and welfare, and financial services solutions to the middle market. Focus: A passionate client centric culture, balanced with our responsibilities to our associates, carrier partners, and shareholders.
Slide 12: Goals & Objectives
Goals & Objectives Deliver at least 5% annual organic revenue growth over the long term, through all industry and economic market cycles Increase EBITDA (earnings before interest, taxes, depreciation and amortization) margins by at least 100 basis points per year, to achieve balanced performance and
Slide 13: Sales & Sales Management
U.S.I. Holdings Corporation Sales & Sales Management
Slide 14: Goals & Objectives
Goals & Objectives Deliver at least 5% average annual organic revenue growth over the long term, through all industry and economic market cycles Increase EBITDA (earnings before interest, taxes, depreciation and amortization) margins by at least 100 basis points per year, to achieve balanced perform
Slide 15: Broad Array of Products and Services
Broad Array of Products and Services Results in Balanced Mix of Business Insurance Brokerage Segment Property and Casualty General Commercial Liability Workers’ Compensation Fidelity and Surety Bonds Professional Liability Personal Lines (Auto, Home, etc.) Affinity Marketing Group Employee Benefits
Slide 16: Retention is the Foundation that Drives Organic Growth
Retention is the Foundation that Drives Organic Growth Key Retention Strategies Cross Sell Stewardship
Slide 17: Proven Strategy and Opportunity: Cross-Sell Matrix
Proven Strategy and Opportunity Cross-Sell Matrix Top 15 clients ranked by revenues Business Property & Casualty Employee Benefits Retirement Core Benefit Enrollment Executive Benefits Account Pers. Def. Name Package GL Umbrella Auto WC Surety Health Life Disability Retire/ 401k Voluntary P&C Life D
Slide 18: Cross-Selling Strategy and Benefits
Cross-Selling Strategy and Benefits Strategy Single distribution point for multiple products and services Definition of cross-sell must be across five broad product categories Compensation and recognition practices reinforce cross-selling culture Aggressive local management of cross selling activiti
Slide 19: Cross-Selling Success
Cross-Selling Success # of Product Top 15 Accounts Top 400 Accounts Categories Sold 2002 2003 2002 2003 1 or more 15 15 400 400 2+ 10 14 173 189 3+ 7 9 66 67 4+ 4 3 25 28 5+ 0 0 0 2 = Increase = Decrease
Slide 20: Cross-Selling Retention Success
Cross-Selling Retention Success LTM thru 9/30/04 # of Product Top Revenue Categories Sold Accounts Retention 1 182 89% 2 112 91% 3 40 93% 4+ 30 96%
Slide 21: Stewardship
Stewardship Stewardship clients, accounts with over $50,000+ in revenue make up approximately 1/3 of USI total revenue Predictive client survey for Stewardship accounts Formalized mandatory stewardship process Use of mandatory Best Efforts on all Stewardship accounts (new and existing) Stewardship a
Slide 22: Stewardship Process
Stewardship Process Listen to the Client “What should we keep doing, do more of and do less of ?” Institutionalize the client relationship (“C” level) Develop cross sell opportunities Develop referral opportunities Agree on service plan
Slide 23: Stewardship Retention Success
Stewardship Retention Success Retention 2003 = mid 80’s Retention 2004 YTD = 92.3% Business plan target goal = 95%
Slide 24: Overall Retention Success
Overall Retention Success Financial Impact Q1 2004 = 87.4% Q2 2004 = 88.6% Q3 2004 = 89.3%
Slide 25: Sales Management
Sales Management Proactively manage sales behavior, real-time monitoring and forecasting Standardized weekly sales meetings across all offices Formalized goal setting and pipeline management process Senior management involvement in the sales process Formalized client stewardship process in all regio
Slide 26: Manager Report Card
Manager Report Card The Manager Report card aggregates the Report Card results at the manager level and displays the opportunity pipeline categories for review
Slide 27: Office Sales Report
Office Sales Report The Office Sales Report highlights the performance variance for each producer in an office Positive numbers indicate the producer is ahead of goal Negative numbers indicated the producer is behind goal
Slide 28: Stewardship Cross Sell Matrix
Stewardship Cross Sell Matrix The Cross Sell Matrix Grid highlights untapped opportunities ? = Opportunity In Progress X = Sold O = Attempted, not sold
Slide 29: Operating Unit 90-Day Pipeline
Operating Unit 90-Day Pipeline
Slide 30: Producer Report Card
Producer Report Card Drilling down into an item on the Office Sales Report reveals the individual producer’s goals and displays the opportunity pipeline categories for review
Slide 31: Organizational Chart
Organizational Chart Dynamically turn your contact list into an Organizational Chart
Slide 32: Cross-Sell Chart
Cross-Sell Chart Dynamically turn your opportunity list into a Cross-Sell Chart
Slide 33: Proactively Recruit New Production Talent
Proactively Recruit New Production Talent Manage our producer pipeline similar to our SFA system Strict qualification process Intensive interviews in the field Testing for sales aptitude and skills Review process that starts in the field and ends with a producer review committee at Corporate Result
Slide 34: Organic Growth
Organic Growth 20% 10% 0% -10% -20% Formal stewardship process for all accounts over $50,000 Increase penetration of cross selling across product lines P&C and benefits provide balance Exposure units mitigate fluctuations (+4%) (-4%) 8% of current business Spread revenue versus heaped Acquisition of
Slide 35: Sales & Sales Management Summary
Sales & Sales Management Summary Stewardship – client retention USI’s passionate client centric focus Cross Selling Continued focus, training, measurement, and incentives Increase from 20% of total sales to ultimately 50% New business production Proactive management of sales behavior using technolog
Slide 36: Operational Overview
U.S.I Holdings Corporation Operational Overview
Slide 37: Goals & Objectives
Goals & Objectives Deliver at least 5% average annual organic revenue growth over the long term, through all industry and economic market cycles Increase EBITDA (earnings before interest, taxes, depreciation and amortization) margins by at least 100 basis points per year, to achieve balanced perform
Slide 38: USI Corporate Structure
USI Corporate Structure * Business Plan target for Corporate Expenses is 4.0% of revenue. Chairman, President & Chief Executive Officer SVP Corporate Development EVP & Chief Financial Officer SVP & Chief Operating Officer SVP & Chief Marketing Officer SVP & General Counsel SVP Human Resources VP Ope
Slide 39: USI Regional Structure
USI Regional Structure * Business Plan target for Field EBITDA Margin is 32.0% of revenue. SVP & Chief Operating Officer VP Operations VP Field Operations Northeast Region Southeast Region Spec. Benefits Region West Coast Region Southwest Region Midwest Region Affinity Region
Slide 40: Organizational Evolution
Organizational Evolution 2004 Year-End > $100mm Rev. Region 1 > $100mm Rev. Region 2 < $75mm Rev. Region 3 < $75mm Rev. Region 4 < $75mm Rev. Region 5 < $75mm Rev. Region 6 < $75mm Rev. Region 7 * 4 of 7 Regions are near our Field EBITDA margin target of 32.0%. Business Plan Region 1 ~ $75mm Rev. Re
Slide 41: Regional Oversight
Regional Oversight Flash Calls – first week of every month CEO Calls – third week of every month Executive Board – every quarter Benchmarks – detailed reporting Budgeting – detailed planning Policy & Procedures – strict compliance
Slide 42: Margin Expansion Goals
Margin Expansion Goals 60% 50% 40% 30% 20% 10% 0% 3.1% Reduction 54.2 52.5 16.7% Reduction 27.3% Reduction 18.6 15.5 5.5 4.0 21.7 28.0 170 bps Field Comp 310 bps Field Opex 150 bps Corporate 630 bps EBITDA Target
Slide 43: Compensation Ratios
Compensation Ratios We track and compare detailed compensation expense ratios for 13 categories across our 25+ operating companies. The high-level summary for our 7 regions is shown below. Compensaton Expense Expense Ratio 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% A B C D E F G R e g io n s Not
Slide 44: Compensation Opportunities
Compensation Opportunities We have detailed plans to drive field compensation to target ratios by operating company for each employee category. Executives Align executives with regions and operating companies Increase focus on performance based compensation Producers Normalize outlier contracts (10%
Slide 45: OpEx Ratios
OpEx Ratios We track and compare detailed operating expense ratios for 25 categories across our 25+ operating companies. The high-level summary for our 7 regions is shown below. Operating Expense Ratio 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% A B C D E F G Regins Note: 2004 Regional Estim
Slide 46: OpEx Opportunities
OpEx Opportunities We have detailed plans to drive field OpEx to target ratios by operating company for each OpEx category. Occupancy Restructure legacy leases Drive efficiency levels to 250 square feet per person Reduce lease terms to prevent future problems Selling Automate T&E system for better c
Slide 47: Benchmarking Process
Benchmarking Process We benchmark each of our operating companies against the USI average and also against our target levels. OpCo 1 OpCo 2 OpCo 25 Average Target Spread Compensation Expense (1) Executive Salary % % % % % % xxx (2) Producer Commissions % % % % % % xxx (3) through (11) % % % % % % xx
Slide 48: Performance Plans
Performance Plans We compare the metrics for each operating company against prior year and target figures. We then determine what actions are required to drive the required margin improvement. Spread vs. Spread vs. OpCo 1 Prior Yr. Target Action Plan Examples Compensation Expense (1) Executive Salar
Slide 49: Corporate Expense Plans
Corporate Expense Plans The Corporate Expense ratio should drop to 4.0% of revenue as we leverage our fixed costs over a revenue base that is growing organically and through acquisitions. Corporate Expense Ratio 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 15.0% 17.5% 20.0% Sample Total Revenue Growth L
Slide 50: Adjusted Corporate Expense
Adjusted Corporate Expense Corporate Expense ratio has dropped to below 5.5% of revenue on an adjusted basis. Corporate Exense Expense Ratio 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% Public Company Related Expenses 4.5% 5.5% 6.1% 5.4% 2002A 2003A 2004F 2004 Adj. Year * Adjustments include annualizing
Slide 51: Operations Summary
Operations Summary Organizational structure in place and scalable as USI grows Expenses are tracked and compared at the detailed level by region and by operating company Detailed plans are in place to drive Field Margin to 32.0% of revenue Detailed plans are in place to drive Corporate Expense to 4.
Slide 52: Acquisition Strategy
U.S.I. Holdings Corporation Acquisition Strategy
Slide 53: Goals & Objectives
Goals & Objectives Deliver at least 5% average annual organic revenue growth over the long term, through all industry and economic market cycles Increase EBITDA (earnings before interest, taxes, depreciation and amortization) margins by at least 100 basis points per year, to achieve balanced perform
Slide 54: Disciplined Acquisition Strategy
Disciplined Acquisition Strategy Highly fragmented industry with over 30,000 agencies within P&C brokerage, employee benefits, worksite marketing, etc. USI’s highly experienced management team has demonstrated its ability to identify, negotiate, consummate and integrate over 200 acquisitions Discipl
Slide 55: Financial Criteria
Financial Criteria Must be accretive to cash earnings per share in first 12 months Target purchase price within 6-7 times Pro Forma EBITDA (excluding synergies) Mix of cash, seller notes and stock Use multiple techniques to ensure that financial results meet expectations Minimum IRR of 15% for stand
Slide 56: Due Diligence and Integration Process
Due Diligence and Integration Process Comprehensive due diligence process Financial review Operational review Legal review Human resource review Comprehensive presentation to our Board of Directors Business overview Investment considerations Historical and forecasted results Cash flow and IRR Impact
Slide 57: Acquisitions 2003-2004
2003-2004 Acquisitions Agency Revenue (MM) Location Auction Footprint Price Accretive Guild Agency $ 2.4 Westbury, NY No Yes Yes Yes Hastings Tapley $ 11.8 Boston, Mass No Yes Yes Yes BMI Insurance $ 4.5 Long Beach, CA No Yes Yes Yes O’Leary-Kientz $ 4.1 Cincinnati, OH No Yes Yes Yes Benefits Team $
Slide 58: Overview of Major Pending Transaction
Overview of Major Pending Transaction Description Rev. ($mm) Rationale Summit Global Partners, Inc. (“Summit”) Established in 1995; based in Dallas, TX 14th largest privately-held insurance brokerage firm in the U.S., with major retail operations in Texas, Florida and California Summit specializes i
Slide 59: Historical Review: Acquired Revenues as % of Prior Year Revenues
Historical Review: Acquired Revenues as % of Prior Year Revenues 350% 300% 250% 200% 150% 100% 50% 0% 324% 111% 30% 30% 17% 8% 2% 0% 0% 8% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 YTD
Slide 60: Historical Review: Number of Transactions
Historical Review: Number of Transactions 30 25 20 15 10 5 0 15 14 6 4 3 2 0 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 YTD
Slide 61: Historical Review: Average Revenue per Transaction
Historical Review: Average Revenue per Transaction $25 $20 $15 $10 $5 $0 $20 $5 $4 $ 4 $3 $3 $2 $2 $2 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 YTD
Slide 62: Acquisitions Reviewed and Declined
Acquisitions Reviewed and Declined USI has a disciplined approach to acquisitions which includes disqualifying potential targets that do not fit within our strategy 30 potential transactions with approximately $175 millions in revenues declined in 2004 primarily as a result of: Management and produc
Slide 63: Acquisition Pipeline
Acquisition Pipeline $350 $300 $250 $200 $150 $100 $50 $0 $305 $253 $191 $167 $130 $104 $10 Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 Q2 2004 Q3 2004
Slide 64: Acquisition Summary
Acquisition Summary Acquisitions are the third leg of the strategy, after organic growth and margin expansion Acquisition candidates must subscribe to the USI culture Acquire at least 10% of prior-year revenues in annualized acquired business within our geographic footprint and maintain acquisition
Slide 65: Leadership Development
U.S.I. Holdings Corporation Leadership Development
Slide 66: Goals & Objectives
Goals & Objectives Deliver at least 5% average annual organic revenue growth over the long term, through all industry and economic market cycles Increase EBITDA (earnings before interest, taxes, depreciation and amortization) margins by at least 100 basis points per year, to achieve balanced perform
Slide 67: Key Leadership Opportunities
Key Leadership Opportunities Focus on developing leadership talent for USI’s growth strategy. Deepen our bench strength. Develop the “USI way” to lead. This will be a key differentiator in the industry. Assimilate new leaders inherited from multiple acquisitions into the USI culture. Develop USI’s e
Slide 68: Leadership Progression
Leadership Progression Corporate Executives Regional Executives Operating Company Management Associates Talent Pipeline
Slide 69: Leadership Development
Leadership Development At USI, Leadership is a means to differentiate us in the marketplace, a way to assimilate new leaders from acquisitions, develop our current leadership talent and a way to prepare promoted leaders and external hires to support our 3 year business plan. 2004 Accomplishments Exe
Slide 70: Performance Management and Development Plans
Performance Management and Development Plans Employees in all positions striving toward – and paid for—top performance in order for USI to meet its business goals. Establishes consistency in standards and performance feedback. Creates a formal structure and platform for individual development plans
Slide 71: Talent Planning
Talent Planning Identify and develop a deep bench of leaders in order to meet growth targets. 2004 Accomplishments Identification & review of pipeline to Corporate Executive and Regional CEO positions Development of success profile Ratings of high-potentials against success profile Discussions with
Slide 72: Producer Development
Producer Development Net-new growth depends cross-selling. All producers must be well-informed regarding all products. Need to have alternative talent channels to hire entry level producers. 2004 Accomplishments CRISP meetings for all producers Practice leaders conducting field presentations, e.g. M
Slide 73: Communication
Communication Consistently communicate to all employees and highlight how each role impacts USI’s success. 2004 Accomplishments Business plan presentations to all major offices Town Hall meetings in all offices 2005 Plans Continue Town Hall meetings All-employee survey and follow-up action plans
Slide 74: Summary of Leadership Development
Summary of Leadership Development Executive coaching and development plans for senior team USI Values and Leadership Competencies are developed, communicated and integrated in all aspects of leadership development Consistent performance management programs differentiate and drive performance Success
Slide 75: Financial Overview
U.S.I Holdings Corporation Financial Overview
Slide 76: Goals & Objectives
Goals & Objectives Deliver at least 5% average annual organic revenue growth over the long term, through all industry and economic market cycles Increase EBITDA (earnings before interest, taxes, depreciation and amortization) margins by at least 100 basis points per year, to achieve balanced perform
Slide 77: Total Revenues
Total Revenues $ in thousands 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 - 2-Year CAGR: 6.7% 16.6% Growth 2001 2002 2003 9-mo. 2003 9-mo. 2004
Slide 78: EBITDA
EBITDA $ in thousands 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - 2-Year CAGR: 55.5% 8.4% Growth 2001 2002 2003 9-mo. 2003 9-mo. 2004
Slide 79: Debt to Capitalization
Debt to Capitalization 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2000 2001 2002 2003 9-mo. 2004
Slide 80: Debt to EBITDA
Debt to EBITDA 8.0x 7.0x 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x - 2000 2001 2002 2003 LTM 9-mo. 2004
Slide 81: USI Income Statement
USI Income Statement ($ in thousands) 9-Months Ended Sept 30, Year Ended 2004 2003 2003 2002 Total Revenues $298,125 $255,781 $354,802 $328,196 Operating Expenses 240,263 202,410 277,687 265,007 EBITDA 57,862 53,371 77,115 63,189 Non-Operating Expenses 31,047 35,602 45,684 52,771 Income (Loss) From
Slide 82: Pro Forma Capitalization
Pro Forma Capitalization ($ thousands) As of September 30, Actual As Adjusted (a) Operating Cash $10,271 $45,807 Other Assets 752,430 752,430 Total Assets $762,701 $798,237 Debt: Term loan & revolver $143,750 $123,750 Seller notes and other debt 34,332 34,332 Total Debt 178,082 158,082 Other Liabili
Slide 83: USI Business Plan Summary
USI Business Plan Summary Identified purpose and market position Established clear goals and objectives Identified and implemented key strategies in support of each goal Documented and communicated business plan to all associates Established dashboard of leading indicators to track progress Stay foc
Slide 84: Questions & Answers
U.S.I. Holdings Corporation Questions & Answers