Upbound Group, Inc. · NASDAQ:UPBD
Upbound — Rent-A-Center — Investor Presentation (August 2006)
33 slides from Upbound's investor presentation, Aug 2, 2006
Slide 1: Investor Presentation Second Quarter 2006
Investor Presentation Second Quarter 2006 August 2, 2006
Slide 2: Key Investment Rationale
Key Investment Rationale Leading rent-to-own operator in the U.S. Proven business model Experienced management team Financially solid — Strong cash flow generation — Sound balance sheet & strong credit statistics Continue expansion of our rent-to-own footprint Growth opportunity adding f
Slide 3: Leading RTO Operator in U.S.
Leading RTO Operator in U.S. Largest rent-to-own operator in the U.S. — 33% market share based on 2,743 domestic store count as of 6/30/06 — ColorTyme subsidiary represents an additional 4% market share Broad selection of high quality, brand-name merchandise through flexible rental agreements —
Slide 4: Leading Player in Fragmented Marketplace
Leading Player in Fragmented Marketplace 8,300 Stores (1)(1) 3,500 3,044 3,200+ 3,000 295 3 Stores Number of Stores Largest 39% 2,500 Firms 2,749 61% 2,000 1,500 1,241 1,000 784 500 74 60 46 36 0 Rent-A-Center / Aaron Rent-Way (4) (4) Bestway (5) (5) Buddy’s Home American Rent One(5) (5) ColorTyme (
Slide 5: Leading National Footprint
Leading National Footprint 2,743 domestic company-owned stores and 295 franchised stores 6 company-owned stores in Canada Company-owned New Store Openings 47 Get It Now 9 2 34 2005A Q2'06 YTD 2006E 33 4 7 67 19 60-70 15 61 13 5 21 139 5 123 18 Acquisitions - Store Fronts 24 128 40 7 26 177 46 2005A
Slide 6: Rent-to-Own is an Appealing Transaction
Rent-to-Own is an Appealing Transaction… No Long Term Obligation Lifetime Service Reinstatement Included 90 Days Same Early as Cash Flexible Purchase Rental Agreements Options Same Day 7 – 36 Months Delivery Term to Ownership No Traditional No Down Credit Check Payment 5
Slide 7: Serving the Underbanked Working Family
…Serving the “Underbanked Working Family”… 75% 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 2.7 million of these households(3) Great market opportunity N
Slide 8: 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 Months 7
Slide 9: Consistent Industry Growth
and Consistent Industry Growth $7 $6.6 C A GR $6.2 6.0% $6.0 $6 $5.6 $5.3 $5.0 $5 $4.7 $4.4 $ in billions $4.1 $3.9 $4 $3 $2 $1 $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: Source: APRO APRO 2005 2005 Industry Industry Survey Survey 8
Slide 10: Proven Business Model
Proven Business Model Key Brands and Attractive Stores Employee Training Systems and Development Customer Relationship 9
Slide 11: Rent-A-Center Store Profitability vs. Peers
Rent-A-Center Store Profitability vs. Peers Monthly Revenue Gross Profit Margin $100,000 $100,000 100% 100% 430 bps 21.8% 80% 80% 74.2% 74.2% $80,000 $80,000 69.9% 69.9% $68,600 $68,600 $60,000 $56,300 $56,300 60% 60% $60,000 $40,000 $40,000 40% 40% $20,000 $20,000 20% 20% $0 $0 0% 0% Store Operatin
Slide 12: Easily Accessible, Highly Visible Sites
Easily Accessible, Highly Visible Sites Leased Sites Only 11
Slide 13: Spacious Showroom Interior
Spacious Showroom Interior No Warehouses - Vendors Ship Directly to the Stores 12
Slide 14: High Quality, Brand-Name Merchandise
High Quality, Brand-Name Merchandise Electronics Furniture Appliances Computers 34% of Rental 37% of Rental 16% of Rental 13% of Rental Revenue Revenue Revenue Revenue Actual Actual data data for for the the twelve twelve months months ended ended June June 30, 30, 2006 2006 13
Slide 15: 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 16: Experienced Management Team
Experienced Management Team Senior management team is the most experienced in RTO industry — CEO Mark Speese has over 27 years of RTO experience — President Mitch Fadel has over 23 years of RTO experience — Senior executives average over 15 years of RTO experience Attracting the best personnel w
Slide 17: Strategic Objectives
Strategic Objectives Enhance store level operations and profitability — Grow same store sales — Maintain expense control Open new stores Acquire existing rent-to-own stores — Storefronts — Customer account Growth opportunity adding financial services within our existing store locations 16
Slide 18: Strong New Store Economics
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 Revenues $425,00
Slide 19: Domestic Market Opportunity
Domestic Market Opportunity 16,000 3,000 - 5,000 14,000 New Store 12,000 Number of Stores Opportunity 10,000 3,231 8,000 Other Competitors 6,000 2,025 3,044 Top 2 4,000 Competitors 2,000 0 Current Landscape 18
Slide 20: Enhance National Brand
Enhance National Brand National and spot media Loyalty program Strategic business relationships 19
Slide 21: Financial Services – Business Rationale
Financial Services – Business Rationale Financial Services Industry z High growth – analyst estimate of double digit growth z Fragmented – similar to rent-to-own 25 years ago z Customer within RAC’s national footprint RAC’s Strengths z Developing ongoing and lasting relationships with customers
Slide 22: Financial Services – Measured Approach Implementation
Financial Services – Measured Approach Implementation Acquired 27 stores from ColorTyme franchisee that offered financial services z Easy, relatively inexpensive way to get into industry z Use as a platform to offer services in RAC stores Product offerings – primarily include deferred deposit an
Slide 23: Financial Services – The Cash AdvantEdge
Financial Services – The Cash AdvantEdge 77 domestic financial services stores within existing Rent-A-Center stores 23 7 Financial Services New Store Openings 9 8 2005A Q2'06 YTD 2006E 13 38 100-120 4 Acquisitions - Store Fronts 6 3 2005A Q2'06 YTD 27 0 7 4 6 Favorable State Regulation Developing/Un
Slide 24: Financial Overview
Financial Overview
Slide 25: Transitioning to Mature Sales Growth in Rent-to-Own
Transitioning to Mature Sales Growth in Rent-to-Own GR 2.5% CA 2,600 $2,339 Combined Revenue ($MM) 2,400 $2,313 A GR $2,228 C 2,200 2 .0% 1 $2,010 2,000 $1,809 1,800 $1,602 1,600 $1,417 1,400 1,200 1,000 1999 2000 2001 2002 2003 2004 2005 Store Revenue Franchise Revenue 24
Slide 26: Q2'06 Review
Q2’06 Review ($MM) ($MM) Revenue ($MM) ($MM) Gross Profit $800 $600 0.5% $700 $550 $580.6 $583.6 0.5% $600 $500 $500 $450 $428.4 $430.5 $400 $400 $300 $350 $200 $300 Q2'05 Q2'06 Q2'05 Q2'06 ($MM) ($MM) $160 EBITDA ($MM) ($MM) $60 $60 Net Income $140 $50 $50 0.5% $120 1.5% $39.6 $39.6 $39.8 $39.8 $10
Slide 27: Current Capital Structure
Current Capital Structure % of % of Jun 30 Book Jun 30 Book (in millions of dollars) 2005 Capital 2006 Capital Cash & Equivalents $25.1 N/A $41.2 N/A Senior Credit Facilities 364.5 23.5% 417.2 25.5% Subordinated Notes 300.0 19.3% 300.0 18.4% Total Debt 664.5 42.8% 717.2 43.9% Shareholder's Equity 88
Slide 28: Operating Cash Flow
Operating Cash Flow ($MM) $450 $400 $342.4 $350 $331.0 $294.5 $300 $250 $185.0 - $205.0 $191.6 $187.9 $200 $175.7 $150 $100 $50 $0 2000 2001 2002 2003 2004 2005 2006E 27
Slide 29: Schedule of Free Cash Flow 2006 Estimate
Schedule of Free Cash Flow 2006 Estimate ($ MM) EBITDA $335 - $355 Net Cash Interest ($45) CapEx ($80) Working Capital ($30) Taxes ($75) Free Cash Flow $105 - $125 Free Cash Flow Yield of Approximately 7% 28
Slide 30: EBITDA and EBITDA Margin
EBITDA and EBITDA Margin ($MM) $450 $425.9 $393.9 $389.3 $400 19.1 $335.0 - $355.0 19.6 16.8 $350 $327.2 $306.1 $304.7 $300 14.0 14 - 15 19.1 16.8 $250 $200 $150 $100 $50 $0 2000 2001 2002 2003 2004 2005 2006E EBITDA(1) (1) EBITDA Margin (%) Notes: Notes: (1) (1) Excludes Excludes nonrecurring nonre
Slide 31: Guidance (per July 24, 2006 press release)
Guidance (per July 24, 2006 press release) QUARTERLY Q3'05A Q3'06P Total Revenue $573.5 MM $584.0-$592.0 MM Diluted EPS $0.35 (1) $0.46 - $0.50 ANNUAL 2005A 2006P Total Revenue $2.34 BN $2.36-$2.38 BN Diluted EPS $1.91 (2) $2.08-$2.15 (3) (1) Excludes the effects of a $13.0 million pre-tax restructu
Slide 32: Key Investment Rationale
Key Investment Rationale Leading rent-to-own operator in the U.S. Proven business model Experienced management team Financially solid — Strong cash flow generation — Sound balance sheet & strong credit statistics Continue expansion of our rent-to-own footprint Growth opportunity adding f
Slide 33: Safe Harbor Statement
Safe Harbor Statement This press release and the 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,” “estimat