Jefferies Consumer Finance Crossover Debt & Equity...
Transcript of Jefferies Consumer Finance Crossover Debt & Equity...
Jefferies Consumer Finance Crossover Debt & Equity ConferenceDecember 7, 2017
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Disclaimer
IMPORTANT: You must read the following before continuing. This presentation has been prepared by CURO Group Holdings Corp. and its subsidiaries (collectively, the “Company”)and is being provided to you for informational purposes only.
The Company has filed a registration statement on Form S-1, including a preliminary prospectus, with the U.S. Securities and Exchange Commission (the “SEC”) in connection withthe offering to which this presentation relates, which has not yet become effective as of the date hereof. An offering may only be made by means of an effective registration statement(including a prospectus) filed with the SEC. Before you invest in the Company’s securities, you should read the preliminary prospectus included in the Company’s registrationstatement on Form S-1 for more complete information about the Company and the offering. You may obtain those documents for free, including after the registration statement onForm S-1 becomes effective, by visiting EDGAR on the SEC website at www.sec.gov.
This presentation contains forward-looking statements. All statements other than statements of historical fact included in the presentation are forward-looking statements. Forward-looking statements give the Company’s current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance andbusiness. These statements may include, without limitation, any statements preceded by, followed by or including words such as “target,” “believe,” “expect,” “aim,” “intend,” “may,”“anticipate,” “assume,” “budget,” “continue,” “estimate,” “future,” “objective,” “outlook,” “plan,” “potential,” “predict,” “project,” “will,” “can have,” “likely,” “should,” “would,” “could” andother words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factorsbeyond the Company’s control that could cause the Company’s actual results, performance or achievements to be materially different from the expected results, performance orachievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present andfuture business strategies and the environment in which it will operate in the future.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements arereasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or willoccur. The forward-looking statements herein speak only as of the date hereof. Factors or events that could cause our actual results to differ from the statements contained hereinmay emerge from time to time, and it is not possible for us to predict all of them. Except as required by law, we assume no obligation to update these forward-looking statements, or toupdate the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future.
The Company discloses EBITDA, Adjusted EBITDA, Adjusted Earnings, Gross Combined Loans Receivable and Adjusted EBITDA Margin, which are not measures defined by U.S.generally accepted accounting principles (“GAAP”). Such measures are intended as a supplemental measure of the Company’s performance that are not required by, or presented inaccordance with, GAAP. The Company presents EBITDA, Adjusted EBITDA, Adjusted Earnings, Gross Combined Loans Receivable and Adjusted EBITDA Margin because itbelieves that, when viewed with the Company’s GAAP results and the accompanying reconciliation, such measures provide useful information for comparing the Company’sperformance over various reporting periods as they remove from the Company’s operating results the impact of items that the Company believes do not reflect its core operatingperformance. EBITDA, Adjusted EBITDA, Adjusted Earnings, Gross Combined Loans Receivable and Adjusted EBITDA Margin are not substitutes for net earnings, cash flowsprovided by operating activities or any other measure prescribed by GAAP. There are limitations to using non-GAAP measures such as EBITDA, Adjusted EBITDA, AdjustedEarnings, Gross Combined Loans Receivable and Adjusted EBITDA Margin. Although the Company believes that EBITDA, Adjusted EBITDA, Adjusted Earnings, Gross CombinedLoans Receivable and Adjusted EBITDA Margin can make an evaluation of its operating performance more consistent because they remove items that do not reflect its coreoperations, other companies in the Company’s industry may define EBITDA, Adjusted EBITDA, Adjusted Earnings, Gross Combined Loans Receivable and Adjusted EBITDA Margindifferently than the Company does. As a result, it may be difficult to use EBITDA, Adjusted EBITDA, Adjusted Earnings, Gross Combined Loans Receivable and Adjusted EBITDAMargin to compare the performance of those companies to the Company’s performance. EBITDA, Adjusted EBITDA, Adjusted Earnings, Gross Combined Loans Receivable andAdjusted EBITDA Margin should not be considered as measures of the income generated by the Company’s business or discretionary cash available to it to invest in the growth of itsbusiness. The Company’s management compensates for these limitations by reference to its GAAP results and using EBITDA, Adjusted EBITDA, Adjusted Earnings, GrossCombined Loans Receivable and Adjusted EBITDA Margin as supplemental measures. A reconciliation of EBITDA and Adjusted EBITDA to net income can be found on slide 28 ofthis presentation. A reconciliation of Adjusted Earnings to net income can be found on slide 29 of this presentation. A reconciliation of Gross Combined Loans Receivable toCompany-owned Gross Loans Receivable can be found on slide 24 of this presentation.
The presentation is confidential and may not be reproduced, redistributed, published or passed on to any other person, directly or indirectly, in whole or in part, for any purpose. Thisdocument may not be removed from the premises, and by accepting this document and attending the presentation, you agree to be bound by the foregoing limitations. If thisdocument has been received in error it must be returned immediately to the Company.
Senior leadership with over a century of collective industry experience
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Presenters
Bill BakerCOO & EVP
Roger DeanCFO & EVP
Don GayhardtPresident & CEO
Industry tenurePrior experience
27years
24years
15years
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Our mission, vision and values
origin: Latin verb: to provide money
curocur·o \ˈkyu̇r-ō
Leading with humilityWinning with integrity
Thriving on change
Building relationships based on trust, honesty and respect
Keeping our commitments
Executing with urgency and passion
Powering innovation for underbanked consumers
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Key investment highlights
VII
VI
III
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Leading large scale lender to underbanked consumers with track record of profitability across credit cycles
Omni-channel platform supports strategy, enhances customer experience and drives superior performance
Diversified revenue base derived from comprehensive product offerings and broad geographic footprint
Large and growing market that is underserved by traditional finance companies and banks
Dynamic marketing strategy generates strong customer growth and optimizes customer acquisition costs
Proprietary, bespoke IT platform underpins underwriting and is supported by a robust compliance culture
Significant growth opportunities with sustainable competitive advantages
$22 $70
2010 Q3 2017 LTM
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Leading large scale lender to underbanked consumers with track record of profitability across credit cycles(1)I
$49
$212
2010 Q3 2017 LTM
($ in millions)
$204
$916
2010 Q3 2017 LTMSingle-pay Installment and other
Adjusted earningsAdjusted EBITDAGross revenues($ in millions)
($ in millions)
Selectively expanded into additional states
Launched online lending platforms Mobile optimized sites and apps
1997 – 2007
Focused branch development in U.S.
2008 – 2013
Channel, product and geographic diversification
2014 – Present
Broad product diversification and brand development
Raised over $1.1 billion of debt financing since 2008
$13.9 billion of total credit extended since 2010
Bespoke IT platform development
Company founded with first location in Riverside, California
International expansion to Canada and the U.K.
Began offering installment loans Installment loan product expansion
Refined best-in-class omni-channel platform
Launched analytical brand marketing
(1) Leading large-scale lender in terms of revenue.
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•
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Distinctive and recognizable branding
Category-killer stores promote brand awareness Synergistic lead funnel for storefront channel
Enhances customer experience
89% 67%
$22.5
$273.4
2010 2016
($ in millions) ($ in millions)
$181.7
$555.2
2010 2016
% of total revenue 11%% of total
revenue 33%
Store revenue(3) Online revenue
Over 80% of web visitors are on mobile(1)
We source customers from a broad base with high retention rates
Convenient locations typically open 7 days per week
Site to store: over 14,000 customers per month(2)
(1) Based on Q3 2017.(2) Includes new and reactivated customers.(3) Calculated as total revenue less online revenues.
Storefront Digital / Mobile
Omni-channel platform supports “Call, Click or Come-in”
Higher approval rates with better credit performance
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III
$1,299``
Single-pay
$335
Segment revenue by product
Unsecuredinstallment
Securedinstallment Open-end
Online and in-store:15 U.S. states, Canada
and the United Kingdom(1)
Channel
Approximate average
loan size(2)
Online and in-store: 7 U.S. states
Online: KS, TN, ID, UT, VA, DE and RI
In-store: KS and TN
Online and in-store:12 U.S. states, Canada
and the United Kingdom(1)
$636 $463
Duration Up to 48 months Up to 42 months Revolving /Open-ended Up to 62 days
Pricing13.2%
Average monthlyinterest rate (3)
10.6%Average monthly
interest rate (3)
Daily interest ratesranging from
0.74% to 0.99%Fees ranging from $13
to $25 per $100 borrowed
Installment58%
U.S. Single-pay
12% Non-U.S.
Single-pay18%
Open-end8%
Ancillary4%
$916 million
LTM September 30, 2017 consolidated revenue Online revenue:
37%(4)
Increasing installment & open-end focus
19%
68%
2010 Q3 2017
(% of revenue)
(1) Online only in the U.K.(2) Includes CSO loans.(3) Weighted average of the contractual interest rates for the portfolio as of September 30, 2017. Excludes CSO.(4) As of Q3 2017 YTD.
Comprehensive product offering and diversified revenue
Q3 2017 U.S. Single-pay: 10.9%
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Brands
2
1336
18 3
3
10 5
92 572
8
1126 27 4
121
1
5
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Stores / states
Both
Online
Store
215 / 14 190 / 7 NA
26 states 5 provinces U.K.
$696 / 76% $183 / 20% $37 / 4%
United States Canada United Kingdom
Online39%
Store61%
Online3% Store
97%Online100%
Online presence
LTM revenue ($ / %)
2016 channel mix
($ in millions)
Broad geographic footprint
(1) Reflects current channel mix since the remaining 13 stores in the U.K. were closed in Q3 2017.
(1)
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Banks Credit unions
Credit cardsMarketplace
lendersBroker dealers
Marketplace lenders Specialized
consumer lendersNon-prime
Credit cards
Providers of credit to U.S. population by FICO band(1)
Over 40% of U.S. consumers are underserved by traditional finance companies
Specialized consumer lenders
20.7% 19.0% 17.1% 13.2%10.0% 8.5% 6.8% 4.7%
> 800 750–799 700–749 650–699 600–649 550–599 500–549 < 500
(1) April 2017; FICO.
$142 billion reduction in the availability of non-prime consumer creditfrom the 2008-2009 credit crisis to 2015
Market is underserved by traditional finance companies
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Hottransfers
Nativeadvertising
Outdooradvertising
Radio
Prescreenletters
Directmail
TV
SEO
PPC
Site-to-store
Printadvertising
Displayadvertising
Affiliate
Integrated Global Marketing, Risk and
Credit Analytics team consisting of 72
professionals
Real time optimization of marketing spend
using credit data
Technology and analytics drive risk-adjusted revenue growth and reduce CPF
2017 Q3 CPF$74(1)
Multi-faceted marketing strategy and deep data analysis
(1) For U.S. loans.
$7.6
$15.0
$18.0
$11.6
$4.7
$8.9
$10.5
$13.1
$5.8
$9.2
$14.2 127,635
190,633
217,523
198,780
123,017
158,707
189,575 194,326
121,307
148,817
185,493
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Direct advertising spend New customers acquired
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($ in millions)
Note: Data for North America only.
1.9 million new
customers added since January 1,
2015
V Opportunistic marketing spend drives strong customergrowth while maintaining low customer acquisition cost
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
CPF - U.S. CPF - Canada
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Structured, proprietary model development and deployment process
Monitor operational changes to address short-term changes to risk environment
Continuous model updates
Optimize loss rates and minimize
effective customer acquisition costs
VI Centralized analytics and IT platform
Installment and open-end products require more stringent credit criteria supported by more sophisticated analytics
Over 71 million applications
Advanced data relevancy techniques
+11,000 potential risk analytic–variables
183 IT professionals and 72 Marketing, Risk and Analytics professionals
15+ years of customer data
Third-party reporting
36.5 million total loans since 2010
$13.9 billion total credit extended
since 2010
Note: Data as of 9/30/2017.
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First-pay defaults(1)
(1) Data for North America only.
Since 2015, we have decreased first-pay defaults periodically while adding 1.9 million new customers
VI Improving credit trends while adding new customers
7%
9%
11%
13%
15%
17%
19%
21%
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
U.S. Online U.S. Store Canada Online Canada Store
First-pay defaults and cost per funded loan are analyzed for optimal vintage performance
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Continue to drive more customer growth in existing products / geographies Data driven, cost-efficient acquisition strategy Increase prescreen direct-mail program and add to affiliate network
Efficient customer
acquisition
New online installment loan brand, Avio Credit New online guarantor loan product in the U.K. under new Juo loans brand Bank partner line of credit offerings in U.S.
New product offerings
Expansion of LendDirect in Canada; pilot stores open Q4 2017 Continue to explore opportunities in new high-growth markets
Geographic expansion
Further reduce customer acquisition cost Continued improvement in credit performance Further expand installment loan offerings in U.S. and Canada
Operational enhancement
Ongoing alignment of financing mix tosupport future growth
Capital structure
optimization
CURO has developed a growth-oriented financial technology platform positioned to capitalize on numerous growth opportunities
VII Multiple opportunities for continued growth
Quarter ended LTM period endedSeptember 30, September 30,
($ in millions) 2016 2017 Growth % 2016 2017 Growth %
Revenue $212.9 $255.1 19.8% $826.5 $915.5 10.8%
Gross margin $67.0 $80.2 19.6% $289.5 $320.7 10.8%
Adjusted EBITDA $40.7 $51.4 26.2% $179.4 $212.4 18.4%
Adjusted earnings(1) $13.1 $14.2 8.7% $66.8 $70.1 4.9%
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Continued growth and profitability
Q3 2017 performance commentary
Average earning assets:−Grew $54.7 million (+15.2%) sequentially
vs. Q2 2017
− Up $83 million (+29%) vs. Q3 2016
Revenue:− Led by Unsecured and Secured Installment
revenue growth vs. Q3 2016 of 50.8% and32.6%, respectively
− Single-Pay revenue was down $11.1 million(13.6%) vs. Q3 2016 on Canada ratechanges and product changes in Alberta,Ohio and the U.K.
Gross margin:− Advertising spend up 37.5% vs. Q3 2016 in
part because of an opportunistic initiative togain market share
− Gross margin improvement on operatingleverage – non-advertising cost of providingservices grew just 4% vs. Q3 2016
Note: Subtotals may not sum due to rounding.(1) Adjusted earnings defined as net income plus or minus gain (loss) on certain non-cash or other adjusting items.
Q3 2017 marked another successful chapter in CURO’s growth story with LTM adjusted EBITDA at an all-time high of $212.4 million
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Historical financial summary (cont’d) Summary balance sheet metrics
Total combined gross loans receivable($ in millions)
$119 $134 $113 $177 $205
$45 $41 $39
$37 $39
$26 $31 $28
$27 $32
$44 $44
$50
$48
$50
$2 $23
$2
$43
$49
$15
$13
$13
$18
$18
$60
$68
$59
$62
$71
$312
$354
$303
$412
$464
2015 2016 Q3'16 Q2'17 Q3'17
U.S. Installment U.S. Single-pay U.S. Open-End Canada Single-pay Canada Installment U.K. CSO loans
$31
19%
Note: Subtotals may not sum due to rounding. (1) Calculated as provisions less NCOs. YTD metrics shown for Q3 2016 and Q3 2017. (2) Total allowance for loan losses and CSO guarantee liability divided by total combined gross loans receivable.(3) Past-due balances for unsecured installment and secured installment total receivables were $41.7 million and $12.6 million, respectively. (4) Past-due balances for unsecured installment and secured installment total receivables were $51.8 million and $15.3 million, respectively.(5) CSO loans are not included in gross loans receivable reflected on the balance sheet.
(3)
(4)
($1)$6$5
16%16%16%Loan loss allowance / gross receivables (%)(2)
Excess provisions(1)
(5)
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Key investment highlights
VII
VI
III
V
IV
Leading large scale lender to underbanked consumers with track record of profitability across credit cycles
Omni-channel platform supports strategy, enhances customer experience and drives superior performance
Diversified revenue base derived from comprehensive product offerings and broad geographic footprint
Large and growing market that is underserved by traditional finance companies and banks
Dynamic marketing strategy generates strong customer growth and optimizes customer acquisition costs
Proprietary, bespoke IT platform underpins underwriting and is supported by a robust compliance culture
Significant growth opportunities with sustainable competitive advantages