Axis Auto PP Investor Presentation... · Private & Confidential Introduction to Axis Auto Finance...

Private & Confidential

Investor Presentation


Introduction to Axis Auto Finance

1 Note: All dollar amounts in CAD | fiscal year end is June 30 1 Post 2 Acquisitions

Axis Auto Finance is a high-growth, non-bank automotive finance company that is backed by

seasoned specialty lending executives and is poised for significant expansion

• Axis Auto Finance Inc. (“Axis”) (TSXV:AXIS) provides used car financing solutions to borrowers unable

to obtain financing through traditional lending sources

• The Company’s portfolio has grown to $110 MM+ post two acquisitions in 2018, and has consistently

delivered superior performance metrics

• Best in the industry management team and board of directors

• The Company is rapidly growing, organically and through acquisitions

• Receivables are funded through a combination of term debt and securitization

Net Finance Receivables Yield vs. Loss Rate

(1)


Axis Management Team

2

Todd Hudson

CEO

• 25 years of sales and operations management experience in Canadian alternative lending

• Proven track record of excellence growing companies both organically and through acquisitions, having overseen and integrated 14 acquisitions throughout his career

Ilja Troitschanski

Founder & President

• A successful entrepreneur with a wealth of business development experience

• Has built Axis consistently delivering best portfolio metrics in the industry

Richard Lloyd

CFO

• Former Director of Operations & Finance at Travelers (acquired by Scotia)

• 20 year career in the automotive finance industry

Steven Koster

Managing Director

• Former SVP Finance at CIT Canada/Newcourt Credit – annual originations of US$ 1.2B

• Former General Manager at TD Equipment Finance

Best-in-class management team of industry veterans is leading Axis on to the next stage of growth


Canadian Non-Prime Auto Finance

3 Source: Desrosiers

The Canadian used light vehicle market is large and has realized significant growth over the past

decade

Canadian used auto market

has grown ~50% over the

past 10 years

85% of used vehicles are

financed through leases

or loans

• A vehicle is a necessity, with 3 MM used cars sold annually in Canada = a market of ~$40 B

• ~30% of Canadians do not qualify for traditional financing sources

• Canadian non-prime used vehicle financing is an estimated ~$8 B market

• There are >8,000 auto dealers in Canada, Axis is in ~900 today

Canadian Used Light Vehicle Retail Market ($ B)


Current Competitive Landscape

4 Source: DealerTrack

The non-prime space is fragmented and the opportunity for consolidation is significant

Client Credit

Quality A B C D

Lenders

Servicing Market

Segment

• A and B credit markets are dominated by the banks

• The D credit market is highly fragmented with no dominant players

• The opportunity for a roll-up strategy exists and Axis has begun consolidation

CONSOLIDATED BY AXIS


Axis Customer Profile

5 Source: Equifax

Large addressable market;

Approximately 30% of Canadians have credit scores in the non-prime range

Average Customer Average Lease

• 37 years old

• Income of $3,900/month

• Credit score between 450-600

• ~7 year old vehicle

• Beginning balance of ~$11,000

• Monthly payments of ~$400

• Average term of 48 months

Canadian Credit Market Breakdown by Credit Score

14%

4% 4% 5%

10% 12%

24%

21%

4%

No Score < 549 550 - 599 600 - 649 650 - 699 700 - 749 750 - 799 800 - 849 850 +


Culture of Risk Management

6 Source: Company disclosures, ADESA Canada

Recession-

Resilient

Business

• Each client’s credit situation is evaluated

individually, using newest technology tools

• Fair market value of the vehicle is established at

the point of adjudication

• A lien is put on each vehicle

• Rigorous audit/verification process prior to

funding

• Every vehicle is insured with Axis as “loss payee”

Carfinco went

through the last

recession with a

manageable increase

in losses

Prices of Canadian

used cars have

remained very stable

over time

During the “Great

Recession” prices

dipped 9%

In cases of non-payment,

Axis is protected through:

Bi-Weekly payments

allow higher contact

frequency

GPS units installed in

the vehicle

Stringent

Underwriting

Criteria

ADESA Canada Used Vehicle Price Index


Consolidation Strategy

7

Axis is now the largest publicly traded subprime auto lender in Canada

The subprime auto finance space presents an opportunity for Axis to implement a roll up strategy,

scale quickly, and build a platform where Axis can dominate by leveraging economies of scale,

operational efficiencies and cheaper funding.

Axis has begun the consolidation process and has successfully executed the first two targets:

(1) Cars on Credit Financial (“CoCF”) and (2) Trend Financial Corp. (“Trend”).

June 2017 March 2018

Axis Portfolio

$22 MM

CoCF Portfolio

$34 MM

Axis Portfolio

$24 MM

June 2018

Trend Portfolio

$54 MM

Axis Portfolio

$24 MM

CoCF Portfolio

$34 MM

Stand Alone: $22 MM

(1) Pro-forma approximation

$58 MM

$110 MM


Acquisition Benefits

8

1

Benefits of the Acquisitions

• Geographic diversification into the Maritimes

• Elimination of a direct competitor

2

Establishment of the Largest Public Sub-Prime Automotive Finance Company in Canada

• Combined finance receivables of approximately $110 MM

• Solidifies Axis as the market leader in the Ontario sub-prime automotive finance space

3

Creates Highly Leverageable Platform to Make Strategic Acquisitions and Increase Scale

• Immediate size and scale provides currency and operating leverage to serve as an acquisition platform

• Reduced client acquisition cost and lower cost financing (expected to be in place in 2018)

4

Attractive Combination Metrics and Realizable, Near-Term Synergies

• Expected to be immediately accretive to CY 2018 adjusted earnings(1) per share

• Significant operating synergies given front- and back-end operational similarities

5

Best-in-Class Management and Board who are Significantly Aligned with Shareholders

• Strong management team with decades of experience in the non-prime automotive finance sector

• Significant shareholder alignment (insiders own 29%)

(1) As defined in the Company’s MD&A dated June 12, 2018


Capitalization & Ownership

9 Note: All dollar amounts in C$MM, all share amounts in millions

Capitalization (in millions)

Equity Ownership (basic)

Axis Insider Holdings

29%

Institutional Holdings

31%

Retail Holdings

40%

Share Price (as of Aug. 24, 2018) $0.53

Axis Insider Holdings 27.3

Institutional Holdings 30.0

Retail Holdings 38.3

Basic Shares Outstanding 95.6

Market Cap $51

Metrics

Axis P/B 1.4x

Carfinco (CFN) 10 Year Avg. P/B 4.1x

Carfinco (CFN) 10 Year Avg. P/E 11.4x


Historical Auto Finance Success

10 Source: Company materials, equity research

Note: P/E multiples presented on a trailing basis

The Canadian automotive finance sector has undergone large, selective M&A over the past decade;

Numerous M&A opportunities remain in a fragmented market of smaller, regional players

Acquired in 2006 by

Acquired in 2007 by

Acquired in 2015 by

Acquired in 2015 by

(Travelers Leasing

Corporation)

P / E: 8.9x

P / B: 4.0x

P / E: 15.0x

P / B: 4.1x

P / E: nmf

P / B: 4.2x

Terms not disclosed

CASE STUDY ON CARFINCO SHAREHOLDER

RETURN SHOWN IN APPENDIX


Board of Directors

11

Bo

ard

of

Dir

ecto

rs

Paul Stoyan

Chairman

• Chairman of Gardiner Roberts LLP, a Canadian business law firm

• Director at ECN Capital and Enghouse Systems; former Director at Open Text Corporation

Todd Hudson

Director • CEO of Axis

Ilja Troitschanski

Director • Founder and President of Axis

Bruce Smith

Director

• Former President and Chief Operating Officer of Element Financial Corporation (TSX: EFN)

and former Managing Director and Senior Vice President of Vendor Finance at CIT Financial

Gerry Thom

Director

• 35 years of experience in operations and management in the public and private sectors

• Recently retired as President of the Public Services Commission

Jordan Zinberg

Director

• Founder and CEO of Bedford Park Capital

• Former MD and PM at Donville Kent – an award winning $300 MM hedge fund

Wes Neichenbauer

Director

• VP and CFO at Rowntree Enterprises

• Decades of experience in automotive retail and financing with Applewood and Trend Financial


Near Term Milestones

12

Coast-to-

Coast

Expansion

Axis is expecting to be originating in all relevant

Canadian markets

Bank Line Axis is expecting to re-finance its existing senior debt with

a significantly cheaper and significantly larger bank

funding facility

TSE Listing Axis is expecting to graduate to the TSE from the TSXV


13

Appendix: Carfinco Case Study


Carfinco Case Study – Overview

14 Source: Company filings Bloomberg

Note: All periods up to and including 2010 are in GAAP, and IFRS thereafter

(1) Reflects total return (capital appreciation + reinvested dividends)

Company

Description

• Carfinco Financial Group Inc. (“Carfinco”) is a non-prime automotive finance company operating as a wholly-owned subsidiary

of Banco Santander

• Completed its initial public offering in 1997 and was acquired by Banco Santander in 2015 for $298 MM

• Historically focused in the D-credit space with a recent migration to B and C-credit space

• Operated in every province in Canada

• Approximately 2,500 dealer relationships across Canada

Finance

Receivables

($ MM)

Total

Shareholder

Return (1)

Geographic Breakdown (Sept. 30, 2014)

Western Canada

$140 Eastern Canada

$86

United States

$43

$269$244

$183

$150$125

$101$106$92

$73$60

$42

Sept.2014

2013201220112010200920082007200620052004

($0.45)

$20.24

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


Historical Valuation

15 Source: Company filings, Bloomberg

Note: P/E reflects a 30-day moving average

P / E

(LTM)

P / B

14.2x

11.4x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

4.0x4.1x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

11.4x

4.1x


Ilja Troitschanski

Founder & President

T: (416) 633-5626

E: [email protected]


Disclaimer This presentation (the “presentation”) has been prepared by Axis Auto Finance Inc. (the “Corporation”) and is being delivered for

information purposes only. The presentation is confidential and is made available strictly on the basis that it will not be reproduced,

redistributed or disclosed, in whole or in part, to any other person at any time, nor its contents disclosed or used for any purpose, without

the prior written consent of the Corporation. The presentation does not contain all information that a prospective investor may require. It is

an overview only and does not contain all the information necessary for investment decisions. Unless otherwise specified in the

presentation, information contained in the presentation may not always be current. No reliance may be placed for any purpose

whatsoever on the information contained in the presentation or on its completeness, and no liability whatsoever is accepted for any loss

howsoever arising from any use of the presentation or its contents or otherwise in connection therewith.

This presentation contains information provided to the Corporation by other parties. The Corporation has investigated such information

but has not completed due diligence and cannot represent and warrant that such information is completely accurate. Should a transaction

progress actual results should be expected to vary from the information presented here. This presentation contains material, non-public

information and you have agreed to hold such information (including the fact that a transaction is being considered) and any additional

non-public information included herein in strict confidence and not to use any material, non-public information in contravention of

applicable securities laws. You are strictly prohibited from disclosing or using this information, other than for the purpose of considering

the referenced transaction, until the information is publicly announced or you receive notice that the referenced transaction has been

abandoned. This prohibition includes any trading in the securities of the Corporation, or any security which derives its value from the

securities of the Corporation. This presentation also provides information on a comparison case study. Readers should be cautioned that

this case study has been provided for illustrative purposes only and should not be interpreted as the projected outcome of the

Corporation.

Neither the presentation nor any copy of it may be taken or transmitted except in compliance with the applicable securities laws. By

accepting this presentation, the recipient represents and warrants that it is a person to whom the presentation may be delivered or

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as offering material of any sort. The presentation and the information do not constitute an offer of securities for sale in the United States.

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Axis Auto PP Investor Presentation... · Private & Confidential Introduction to Axis Auto Finance...

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