Upload
srin-subra
View
35
Download
0
Tags:
Embed Size (px)
DESCRIPTION
Specialty Finance Report
Citation preview
Please refer to important disclosures on pages 104 and 105. Analyst certifi cation is on page 104.William Blair & Company, L.L.C. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the fi rm may have a confl ict of interest that could affect the objec-tivity of this report. Investors should consider this report as a single factor in making an investment decision.
Equity ResearchFinancial Services and Technology | Financial Technology | Specialty Finance| Business Development Companies
Financial Technology and Specialty FinanceSector Update and 2014 Outlook
We believe the global economy is stable and steady with some modest accelera-tion in several markets. The global economy will likely be slightly stronger in 2014 than it was in 2013, in our view.
The secular growth opportunity in global electronic payments has not declined in the least, in our view. We still believe that about 85% of global retail payment transactions use cash and checks, in line with three years ago, despite double-digit secular growth. Faster-growing emerging-market economies (i.e., Latin America, Asia, Africa, and Eastern Europe), which are predominantly cash-based, put upward pressure on the electronic payments opportunity.
International growth of electronic payments will continue to materially exceed growth in the United States. Companies poised to bene it from the international growth of payments should show strong inancial results despite the uncertain eco-nomic environment. Asia, Latin America, the Middle East, and Africa all have substan-tial long-term electronic payment growth opportunities, in our view.
Technological innovation is a key driver to growth of inancial services. Innova-tion in the payments space continues to accelerate. Mobile payments; tablet comput-ers, such as iPads; prepaid cards; mobile wallets; the Internet; and online lending are all examples of game-changers in the inancial services sector.
Consumer-directed healthcare secular trend appears to be gaining momentum. We believe the growth of consumer-directed healthcare is the single best way to control the growth of healthcare costs. We believe the Affordable Care Act has accel-erated the trend. Private healthcare exchanges appear poised for substantial growth.
Regulatory pressures continue to build for the inancial technology sector. We believe most companies will navigate the environment, but costs continue to rise.
Financial technology continues to outperform the market; valuation continues to expand. After 30% growth in 2012, the William Blair Financial Technology Index rose 44% in calendar 2013, versus the S&P 500 growth of 13% in 2012 and 30% in 2013. The William Blair Financial Technology index trades at about 12 times on an EV-to-EBITDA basis, 29% above year-ago-levels.
Companies with high barriers to entry, long-term secular growth, international exposure, and visible operating leverage should remain core holdings.
Robert P. Napoli Brian D. Hogan Cristopher D. Kennedy, CFA+1 312 364 8496 +1 312 364 5256 +1 312 364 [email protected] [email protected] [email protected]
January 14 , 2014Industry Report (14-009)
Financial Technology
Alliance Data Systems Corporation (ADS) Outperform, Core GrowthAmerican Express Company (AXP) Outperform, Established GrowthCapital One Financial Corporation (COF) Market Perform, Core GrowthCardtronics, Inc. (CATM) Outperform, Core GrowthDiscover Financial Services (DFS) Outperform, Core GrowthEVERTEC, Inc. (EVTC) Outperform, Core GrowthFinancial Engines, Inc. (FNGN) Outperform, Aggressive GrowthGreen Dot Corporation (GDOT) Market Perform, Aggressive GrowthMasterCard Incorporated (MA) Outperform, Established GrowthMoneyGram International, Inc. (MGI) Outperform, Aggressive GrowthPerformant Financial Corp. (PFMT) Outperform, Aggressive Growth QIWI plc. (QIWI) Outperform, Aggressive GrowthVisa Inc. (V) Outperform, Established GrowthWageWorks, Inc. (WAGE) Outperform, Core GrowthThe Western Union Company (WU) Market Perform, Established GrowthWEX Inc. (WEX) Outperform, Core Growth
Specialty Finance
CAI International, Inc. (CAP) Outperform, Core GrowthDFC Global Corp. (DLLR) Market Perform, Aggressive GrowthEncore Capital Group (ECPG) Outperform, Core GrowthIndependence Realty Trust, Inc. (IRT) Outperform, Core GrowthMarlin Business Services Corp. (MRLN) Outperform, Core GrowthPortfolio Recovery Associates, Inc. (PRAA) Outperform, Established Growth
Business Development Companies
Garrison Capital Inc. (GARS) Outperform, Core GrowthHarvest Capital Credit Corp. (HCAP) Outperform, Core GrowthMonroe Capital Corp. (MRCC) Outperform, Core Growth
2 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
ContentsSummary ............................................................................................................................3
2014 Top Picks...................................................................................................................6
Runners-up ........................................................................................................................9
Attractive Long-Term Investments ..................................................................................10
Yield Stocks ......................................................................................................................11
Consumer Trends ............................................................................................................13
Commercial Trends .........................................................................................................36
Mortgage/Housing Trends ..............................................................................................58
Payments and Remittance Trends ..................................................................................74
Stock-Price Performance and Valuation .........................................................................92
3 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
SummaryIn 2013, the William Blair Financial Technology Index rose 43.7%, while the William Blair Specialty Finance Index rose 46.9% (versus 29.6% for the S&P 500). This performance is on the heels of the William Blair Financial Technology Index rising 30.3% in 2012 and the William Blair Specialty Finance Index rising 30.6% in 2012 (versus 13.4% for the S&P 500).
0
50
100
150
200
250
300
350
400
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
Jan-
14
Exhibit 1William Blair Financial Technology Index Versus S&P 500
Fin TechS&P 500
Sources: FactSet and William Blair & Company, L.L.C.
Price (Indexed to 100)
0
50
100
150
200
250
300
350
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
Jan-
14
Exhibit 2William Blair Specialty Finance Index Versus S&P 500
Specialty Finance
S&P 500
Sources: FactSet and William Blair & Company, L.L.C.
Price (Indexed to 100)
We believe that despite strong stock price performance, valuations remain reasonable; however, we expect modest multiple expansion from current levels. On an EV-to-EBITDA basis, valuation for the William Blair Financial Technology Index expanded 29% in 2013, to 12.0 times; interestingly, valuations have expanded by 7 points (or 147%) from their bottom in November 2008. We believe the relatively strong business models and secular tailwinds suggest the group could trade at a 12- to 14-times multiple over time.
4 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Exhibit 3William Blair Financial Technology Index
EV-to-NTM-EBITDA
Sources: FactSet and William Blair & Company, L.L.C.
A Few Interesting ChartsThe 178 exhibits in this report highlight the various macro trends that we monitor and histori-cal valuations. Below we focus on a few of the more interesting exhibits that might represent an in lection point.
• The U.S. population continues to rely heavily on the government payments (exhibits 21 and 22, on pages 21 and 22). As of third quarter 2013 (the most recently available data), about 17% of personal income comes from government social bene it programs (e.g., Medicaid, Medicare, unemployment insurance, Social Security, and veteran’s bene its); this compares with 13.99% exiting 2006 and the long-term average of 10.4% (since 1947). Further, social bene it payouts have exceeded employer and employee contributions by about 1.5 times since 2009 (versus the long-term average of 1.08 times). In the September quarter, for instance, the government paid $2.4 billion in social programs but collected only $1.6 billion from employers and employees for the programs.
• The U.S. jobs market continues to gradually improve. For most of 2013, weekly initial unemployment claims have been below 350,000, on a four-week rolling average basis, a level that we view as “healthy.” Weekly jobless claims—which we view as a more important indicator than the monthly employment report—are down about 50% from their March 2009 highs. Initial jobless claims, on a four-week average basis, have ranged from 305,000 to 369,000 in 2013 (exhibit 23, on page 23).
• Consumer deleveraging appears to be bottoming; consumers have plenty of “dry powder” that will drive spending if con idence returns (exhibits 13, on page 17, and 37, on page 30). Revolving credit outstanding was at $823.4 billion, which remains 18% ($182 billion) below the recent December 2008 peak. Further, consumers’ inancial obligation ratio (household debt payments to disposable income) was 15.36% in the September 2013 quarter; this compares with the most recent peak of 18.10% in December 2007 and the average of 16.6% since 1980.
• Credit quality continues to be near record low levels (exhibit 72, on page 49). According to the Federal Reserve, 0.97% of all business loans were delinquent in the September 2013 quarter, which compares with the recent peak of 4.36% in the September 2009 quarter and the historical average of 2.98% since 1985. Similarly, charge-offs totaled 0.23% in the September 2013 quarter, which compares with the recent peak of 2.52% exiting 2009 and the historical
5 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
average of 0.90% since 1985. We believe recent trends will prove unsustainable over the long term but could linger longer than most expect, due to the improving economy, the tighter lend-ing environment, and the overall deleverage in the market.
• The U.S. housing market is the key to a much-more-robust economy and shows steady signs of improvement; however, higher interest rates appear to have pressured afford-ability (exhibits 94, on page 60, and 115, on page 71). Residential investment as a percentage of U.S. GDP represented 3.2% in the September 2013 quarter and compares with the recent bottom of 2.4% in 2010, the recent peak of 6.7% in 2005, and the historical average of 4.6% since 1929. Housing affordability, as de ined by the National Association of Realtors, is 23% below its recent peak, reached in January 2013, but remains 12% above its long-term average. According to the National Association of Realtors, the index “measures whether a typical family could qualify for a mortgage loan on a typical home” and is based on the combination of median home price, median family income, and average mortgage interest rates.
• Consumer-directed healthcare continues to gain share as employers ind solutions to contain healthcare costs (exhibits 148 and 149, on pages 90 and 91). Healthcare represents 17.7% of the United States gross domestic product (GDP), which compares with 9% in 1980 and the global average of 9.3%, according to the Organisation for Economic Co-operation and Development. Only about 20% of employees in the United States are covered by high-deductible health (versus 4% in 2006), according to the Kaiser Family Foundation. In addition to tax bene its, employers have incentives to increase their participation in these programs, because consumer-directed bene its reduce total cost of coverage by about 18% per employee (versus PPO and HMO plans), according to Mercer. We believe 2014 could represent an in lection point for the healthcare exchange market.
Key risks include government budget de icits broadly, global currency risks, in lation, interest rate volatility, geopolitical events, and disruptive terrorist events.
6 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
2014 Top PicksOur top picks for 2014 include Outperform-rated Visa, MasterCard, and Discover Financial Services. We believe our top picks have high risk-adjusted returns (i.e., below-average risk of experiencing a sharp decline and above-average long-term opportunity to materially outperform the market). We outline our rationale for each of the companies below.
Visa Inc.
Rationale
• Visa is well positioned to continue capitalizing on the electronic payments secular growth trend. Roughly 85% of payment transactions globally are cash and check (versus roughly 45% in the United States). For perspective, electronic payment transactions accounted for about 15% of the U.S. market in 1990, according to The Nilson Report. Secular growth of electronic payments is expected to be 10% to 12%, on average, globally over the next several years, which compares with personal consumption expenditure growth of about 7%. The drivers behind the secular shift from paper to plastic include convenience, security, and enhanced services and rewards for the consumer, as well as lower cash-handling expenses for the retailer.
• Management estimates that it has roughly 22% share of personal consumption expenditure (PCE) in its developed markets (excluding Europe) up from 19% in 2009, and only 9% share of PCE in its emerging markets, up from 6% in 2009.
• Visa’s global network represents substantial barriers to entry, and disintermediation appears unlikely, in our view. There are substantial barriers to entry as incumbents have massive scale and global reach, as well as leading security and data management skills, information intelli-gence, brand recognition, and trust. We believe the cost of building a global payments network would even prevent the largest technology, inancial, or wireless companies from seriously considering such an endeavor.
• Visa enjoys high incremental margins, which contribute to its attractive margin pro ile (61.5% in iscal 2013, ending September) and strong free cash low, positioning the company to invest in growth initiatives (e.g., prepaid, mobile, e-commerce, international, and person to person).
• Amid the backdrop of strong secular tailwinds, we believe iscal 2014 guidance could prove conservative. Fiscal 2014 guidance calls for low-double-digit constant-currency revenue growth and mid- to high-teens adjusted EPS growth. Guidance is based on a “tepid” economic recovery. We expect long-term sustainable EPS growth of at least 15% due to the secular tailwinds, mod-est margin expansion, and capital redeployment.
• Visa has a strong balance sheet and generates strong cash low. The company had about $7 bil-lion of cash and investments and no debt on its balance sheet as of September 30, 2013. Visa should generate nearly $5 billion of free cash low in iscal 2014 and is authorized to repurchase more than $5.2 billion of stock.
Valuation
• On a calendar-year basis, Visa trades at about 24 times our 2014 EPS estimate and 21 times our 2015 EPS estimate, yet we anticipate 19% EPS growth in 2014 and 16% growth in 2015. The stock trades at under a 1.2 PEG ratio, which is attractive relative to the broader market.
7 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
• Similarly, on an EV-to-EBITDA basis, Visa trades at about 14 times for calendar 2014 and 12 times for 2015, yet we anticipate 12%-13% EBITDA growth.
Key Risks
• Global economic growth remains an important driver of revenue growth for Visa. During the prior recession, Visa revenue growth rose 9% year-over-year in calendar 2009 (versus 18% in calendar 2008).
• Legal and regulatory risks remain.
MasterCard Incorporated
Rationale
• Similar to Visa, MasterCard is well positioned to continue capitalizing on the electronic pay-ments secular growth trend (see thesis above).
• Also similar to Visa, MasterCard’s global network represents substantial barriers to entry, and disintermediation appears unlikely, in our view. We believe there are substantial barriers to entry as incumbents have massive scale and global reach, leading security and data management skills, information intelligence, brand recognition, and trust. We believe the cost of building a global payments network would even prevent the largest technology, inancial, or wireless companies from seriously considering such an endeavor. For perspective, MasterCard-branded cards accounted for about $3 trillion of total purchase volume over the last 12 months.
• High incremental margins should drive MasterCard’s operating margin expansion over time. The network effect allows for incremental margins in the 90% range, in our opinion. However, we believe the company will heavily invest in prepaid, mobile, e-commerce, international, person to person, and other initiatives, allowing for a more gradual increase in operating margins from the current level of just about 56%.
• Amid the backdrop of strong secular tailwinds, guidance could prove conservative. On a constant-currency basis and excluding future acquisitions, guidance for 2013-2015 calls for net revenue to increase at an 11%-14% compound annual rate, operating margins to remain above 50%, and EPS growth of at least a 20% compound annual rate. We believe capital allocation and share buybacks will play a larger role in EPS growth in the coming years as operating margins remain elevated.
• MasterCard has a solid balance sheet and produces strong cash low. It exited the September 2013 quarter with $3.4 billion of cash and equivalents and $2.6 billion of investment securities, and it should generate more than $3 billion of free cash low in 2014.
Valuation
• MasterCard trades at about 27 times our 2014 EPS estimate and 23 times our 2015 EPS estimate, yet we anticipate 18%-20% EPS growth in the coming years. MasterCard trades at under a 1.2 PEG ratio, which is attractive relative to the broader market.
• Similarly, on an EV-to-EBITDA basis, the stock trades at about 16 times 2014 and 13 times 2015; yet we anticipate over 15%-16% EBITDA growth in coming years.
8 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Key Risks
• Global economic growth remains an important driver of revenue growth for MasterCard. Dur-ing the prior recession, its revenue increased 2% year-over-year in 2009 (versus 23% growth in 2008).
• Legal and regulatory risks remain.
Discover Financial Services
Rationale
• Discover continues to expand and enhance its direct banking strategy, which along with its network, uniquely positions it among its peers, in our opinion. We believe the company is well positioned to continue to bene it from the secular growth of electronic payments, both consumer and commercial.
• Discover is taking market share in credit card lending and ills a signi icant void left by the banks with its personal loan offering as well as student lending. Discover’s credit card lending portfolio (80% of total loans) was up 4.0% in the third quarter, comfortably above the industry growth rate of 0.2%. We forecast Discover to continue taking market share, and we forecast 4% growth in both 2014 and 2015. Discover is one of only a few lenders underwriting private student loans today. We believe Discover is well positioned to increase its market share in stu-dent lending (13% of total loans). The personal consumer lending business (6% of total loans) is growing rapidly, as Discover is taking advantage of the market dislocation and signi icant market opportunity, which we estimate at roughly $400 billion.
• Credit quality trends remain strong, exhibiting improving trends despite seasonal headwinds, relatively strong loan portfolio growth, and credit metrics already at record-low levels. While further material improvement is unlikely, we expect credit losses to remain below average for an extended period. We expect Discover’s loss provisioning over the next year to be primarily attributed to loan growth. At this point, we believe our loss rate forecast of 2.1% in 2014 could be conservative.
• Network partnerships provide material long-term upside potential. Discover’s closed-loop network gives it unique long-term value, in our opinion. We believe the barriers to building a closed-loop payments network are substantial. Discover has built its unique franchise over decades. We believe its network is underused, but management appears active in seeking ways to increase the volume on its network, forming partnerships with a host of marquee companies looking to build or enhance their payments businesses. While we believe the partnerships have signi icant potential, it will likely take several years to be meaningful, if successful.
• International network expansion represents a long-term opportunity for Discover, though likely not material in the near term. Discover is using the Diners Club brand and building out the interoperability of its network to establish an international presence. The network interoper-ability allows a Discover-branded card to be accepted anywhere Diners Club is accepted.
• Discover is signi icantly overcapitalized, generates strong cash lows, and is aggressively re-turning capital to shareholders. Return on equity is a little more than 20%, versus loan growth of about 5%; this compares with management’s long-term average target of 15%. Discover’s tier-1 common ratio stood at 14.7%, up from 13.9% a year earlier and despite a 5% reduction in the share count. We forecast Discover to return 80% of capital generated in 2014 and 2015 via dividends and share repurchases.
9 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Valuation
• Discover shares trade at about 12 times our 2014 EPS estimate, compared with about 15 times for a broad group of regional banks. Discover generates higher return on equity, has a higher long-term earnings growth rate, and has substantial excess capital. Discover is more credit sensitive and regional banks bene it more from rising interest rates, but over the long term, we believe Discover’s valuation gap with that group will narrow materially. In addition, the stock trades in line with Capital One despite generating higher return on equity and a more visible growth outlook. We also believe Discover’s valuation gap to American Express, which trades at about 16 times our 2014 EPS estimate, is also too wide.
Key Risks
• The banking industry, which includes credit card lending, is under increased regulatory scrutiny.
• Economic cyclicality could drive greater-than-expected volatility in earnings. A weak economy would lead to consumer spending and could also lead to higher-than-expected credit costs.
• Compression of interchange fees, driven by regulatory intervention and/or competition, could adversely affect operating results.
Runners-upBelow we highlight other stocks in our universe that were on our runners-up list:
American Express Company (Outperform)American Express is valued at a market multiple and has good business momentum; we believe it is likely to trade at a premium to the market. Wells Fargo and U.S. Bank will issue the American Express cards; we believe these new relationships highlight the power of the brand.
CAI International, Inc. (Outperform)CAI was a disappointing stock in 2013, up only 3% in 2013. Relative valuation has plummeted versus its peers, despite in-line fundamental performance. We believe this is due to smaller market cap and the lack of a capital return plan. CAI’s shares are valued at about 7 times our 2014 EPS estimate versus the peer average of 11.3 times. Its price-to-book value of about 1.3 times compares with the peer average of about 2.4 times. If global growth accelerates slightly in 2014, we believe estimates could start to move up and that the stock price could have 50% upside.
DFC Global Corp. (Market Perform)DFC is the worst performer in our universe in 2013, down 47% year-to-date. The underperformance is due to severe regulatory changes in the U.K. market. DFC’s Canadian and U.S. segments are driving solid performance and justify the current valuation. We believe U.K. regulation will drive out many competitors and that it is a likely survivor and should drive reasonable returns in that market. If this happens, we believe there is upside potential of 50% to 100%.
EVERTEC, Inc. (Outperform)Evertec is a Latin American payments and inancial technology company. The stock has been es-sentially lat at around $20 since its initial public offering. Shares are valued at about 15 times our 2014 EPS estimate while its peers trade at 15-20 times. Cash lows are strong with 50% EBITDA margins and a 10% tax rate. Currently, 85% of business is generated in Puerto Rico, but the big growth opportunity is outside Puerto Rico.
10 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
MoneyGram International, Inc. (Outperform)The stock remains inexpensive at about 6 times our 2014 EBITDA estimate, despite 50% stock price appreciation in 2013. MoneyGram has reported 12 consecutive quarters of double-digit transaction growth; in the most recent quarter, it had 14% transaction growth and 13% revenue growth, all organic. We expect double-digit transaction growth for the next few years.
Performant Financial Corporation (Outperform)Performant was another 2013 underperformer, with the stock up only 5%. Management has ex-ecuted well, but it has been faced with continued uncertainty and indecision by the Centers for Medicare and Medicaid Services (CMS) with regard to its Medicare RAC business, which is about 25% of revenue. Shares are valued at about 8 times our 2014 EBITDA estimate. We believe there is 50% upside potential if a favorable resolution on the Medicare RAC is attained.
Attractive Long-Term InvestmentsBelow we list other stocks in our coverage universe that we believe are compelling long-term invest-ments. Most of these stocks were up signi icantly more than the William Blair proprietary inancial technology and the specialty inance indices as well as the market as a whole.
Alliance Data Systems Corporation (Outperform)We believe ADS brings a unique proposition to the market by marrying digital marketing skills with credit and loyalty products; as a result, ADS is in the sweet spot of the trend toward enabling commerce through technology. We believe management’s long-term targets and our estimates are conservative. Management targets revenues to grow organically at the rate of three to four times gross domestic product, which should drive about 10% EBITDA growth and 15% EPS growth. Shares trade at about 21 times our 2014 economic EPS estimate and 19 times our 2015 estimate.
Debt Collectors: Portfolio Recovery Associates, Inc. (Outperform) and Encore Capital Group, Inc. (Outperform)Both stocks are up roughly 50% in 2013, following similar moves in 2012. Valuations are still rea-sonable, in our opinion, but regulatory headwinds and debt supply questions add some near-term noise. Industry consolidation in the United States has accelerated, and both Portfolio Recovery and Encore are clear winners over the long term, in our opinion. In addition, we believe global opportu-nities—especially in the United Kingdom and Europe broadly—add to long-term growth potential.
Financial Engines, Inc. (Outperform)Financial Engines has expanded its total addressable market substantially with the addition of IRA and Income+ products over the past couple years. In our opinion, the third quarter 2013 was the company’s best quarter ever, as it added a record $85 billion of assets under contract (AUC), bringing the total AUC to $752 billion, up 34% year-over-year, and EBITDA rose 50%. The shares are valued at about 11 times our 2014 revenue estimate and 3.2% of AUM.
QIWI plc (Outperform)QIWI is a Moscow-based payments company that is up about 200% since its May 3, 2013, initial public offering. The company has strong momentum and has exceeded expectations by a wide margin each quarter since the IPO. Valuation is at about 28 times 2015 EPS and about 21 times EBITDA.
WageWorks, Inc. (Outperform)WageWorks is one of the best plays in the trend toward consumer-directed healthcare bene its, in our opinion. We also believe it is a great play on the growth of private exchanges, based on its exclusive relationship with Towers Watson’s active exchange. Bene its from the exchange
11 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
relationship, potential acquisitions, and the likely bene its from positive adjustments to the use-it-or-lose-it rule are not included in our estimates and are likely to affect 2015 and later years much more than 2014.
WEX Inc. (Outperform)WEX was one of our top picks for 2013. The company reported strong reacceleration in its online travel payments business in the September quarter and steady results in its core fuel card business. Perhaps most importantly, it announced an acquisition of the Exxon private-label card program in Europe (marketed under the Esso brand) that doubles the total addressable market for the fuel card business. However, the deal will not close until late 2014 and will be dilutive to 2014 and irst half 2015 earnings. We hope this will lead to other deals with major oil companies in Europe and Asia. Shares are valued at about 18 times our 2014 and 16 times our 2015 EPS estimates.
Green Dot Corporation (Market Perform)Despite an onslaught of new competition, Green Dot’s core business appears to be more resilient than our (and management’s) initial expectations. Shares remain relatively inexpensive at about 6 times 2014 EV-to-adjusted-EBITDA and 17 times EPS; the company had $245 million of net un-encumbered cash and investments (or $5.39 per share) on the balance sheet exiting September. Green Dot’s ive-year contract with Wal-Mart (65% of Green Dot’s revenues) expires in May 2015.
Cardtronics, Inc. (Outperform)We believe Cardtronics has a unique franchise and that the company has several levers that will drive long-term growth, including both secular and macro (e.g., increased circulation of cash, growth in ATM transactions, growth of prepaid, and shrinkage of bank branches) and internal initiatives (e.g., addition of new revenue streams, geographic growth, and cost initiatives). We are encouraged by the Cardpoint acquisition, which will provide scale in the United Kingdom and serve as a platform for Germany. We note that Cardtronics’ contract with 7-Eleven (27% of 2012 revenues) expires in July 2017.
The Western Union Company (Market Perform)We remain attracted to the $550 billion global remittance market, which should grow 8%-9% in the coming years, and we have been encouraged by accelerating transaction growth at Western Union. Yet the company has been plagued by operational challenges, and 2014 is expected to be another year of transition as regulatory costs are expected to increase $60 million to $110 million. While this will be painful over the short term, we believe the tightening regulatory environment could improve the competitive and pricing environment for the largest companies. Western Union maintains a solid global brand and generates strong free cash low.
Yield StocksFor investors in search of yield, we believe the three business development companies (BDCs) on our coverage list are attractive alternatives to high-yield bonds and that they are attractive relative to the broader BDC sector as a whole. We view Monroe Capital as the most compelling of the three BDCs that we cover, given its current valuation and market position. The lending to lower-middle-market companies (roughly $10 million to $100 million in revenue and $2 million to $20 million in EBITDA) offers signi icant opportunities, considering the relatively high amount of loan maturities over the next several years and the level of competition, in our view.
In addition, we ind apartment real estate investment trust (REIT) Independence Realty Trust at-tractive, given its focus on secondary markets, its relationship with RAIT Financial Trust, and its compelling valuation.
12 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Monroe Capital Corporation (Outperform)Monroe is an externally managed BDC that provides customized inancing solutions primarily to lower-middle-market companies in the United States. Monroe Capital’s inancing solutions consist primarily of senior, unitranche, and junior secured debt. We believe its current valuation, substan-tial market opportunity, management team’s proven track record, and differentiated sourcing and origination platform make the shares an attractive investment. Monroe’s book value as of September 30 was $14.01. We believe shares should trade at a slight premium to book value, especially once Monroe gets its SBIC license, which we view as likely sometime in the irst half of 2014. Monroe’s annualized dividend of $1.36 equates to a yield of about 11%, versus its primary peer group of about 9.0%.
Garrison Capital Inc. (Outperform)Garrison is an externally managed BDC that provides customized inancing solutions primarily to lower-middle-market companies in the United States. Garrison’s inancing solutions consist primarily of irst- and second-lien senior secured, unitranche, and subordinated debt. First-lien senior secured loans accounted for 91% of Garrison’s $412 million portfolio as of September 30. We are con ident in the stability of Garrison’s dividend and believe that an eventual increase is likely —once Garrison gets the SBIC license. The dividend yield of 9.8% compares favorably with high-yield bond funds, which return about 6.5%, and with its primary peer group average of about 9.0%. Garrison’s book value as of September 30 was $15.11. We believe shares should trade at a slight premium to book value. We appreciate management’s long-term focus and discipline.
Harvest Capital Credit Corporation (Outperform)Harvest is an externally managed BDC that provides customized inancing solutions, primarily to the lower-middle market in the United States. Harvest’s inancing solutions consist primarily of se-cured subordinated (junior) debt, senior secured debt, unitranche, and, to a lesser extent, minority equity investments. Secured junior loans accounted for 55% of Harvest’s $49 million portfolio as of September 30, while senior secured debt accounted for 39%. By focusing on the lower-middle market and secured junior debt, Harvest generates asset yields in the mid- to upper teens, which should allow the company to generate a return on equity (ROE) of more than 11% once the portfolio is fully ramped up. Harvest’s current annualized dividend of $1.35 per share equates to an 8.9% yield, generally in line with the peer group. Harvest’s book value as of September 30, was $14.79. We believe shares should trade at a slight premium to book value.
Independence Reality Trust, Inc. (Outperform)IRT is an externally managed multifamily apartment REIT that aims to generate attractive risk-adjusted returns with an emphasis on distributions and capital appreciation. The company is focused on owning, operating, and acquiring apartment properties with stable occupancy rates and resident bases that are located in relatively developed submarkets. We believe Independence should bene it from the current economic, market, and demographic environment trends. IRT has a strong pipeline with over $100 million worth of properties at various stages of due diligence and underwriting, which, if closed in its entirety, would nearly double IRT’s portfolio. IRT’s shares trade at a 7.5% dividend yield relative to its peer group range of 3% to 5%. IRT’s dividend is considered return of capital for tax purposes versus the more common treatment as ordinary income.
13 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Consumer TrendsConsumer credit improvement is near an end but will likely remain better than average for an extended period. According to the Federal Reserve, credit card charge-offs improved 43 basis points quarter-over-quarter in third quarter 2012, to 3.19%—the lowest level since irst quarter 2006, which was positively affected by the October 2005 bankruptcy law change. Delinquencies, which precede charge-offs, increased 6 basis points from the second-quarter record-low level of 2.47%. Since 1987, consumer credit cycles averaged about three years, with the shortest cycle 1.75 years and the longest cycle 4.5 years. Positive credit cycles have ranged from 2.25 to 4.0 years. Although further improvement in the credit metrics is likely near an end, we believe credit qual-ity could remain better than average for an extended period because of tighter lending standards, consumer deleveraging, and the improvement in initial jobless claims.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
1Q85
1Q86
1Q87
1Q88
1Q89
1Q90
1Q91
1Q92
1Q23
1Q94
1Q95
1Q96
1Q97
1Q98
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
(%)
Exhibit 4Consumer Loan Charge-off Rates, NSA
Credit Cards Total
Oct. '05 Bankruptcy Law Change
3.5 yrs 3.0 yrs 2.25 yrs 3.25 yrs 2.5 yrs 1.75 yrs 4.0 yrs 4.5 yrs
As of end of 3Q13
Sources: Federal Reserve and William Blair & Company, L.L.C.
3.0+ yrs
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1Q85
1Q86
1Q87
1Q88
1Q89
1Q90
1Q91
1Q92
1Q23
1Q94
1Q95
1Q96
1Q97
1Q98
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
(%)
Exhibit 5Consumer Loan Delinquency Rates, NSA
Credit Cards Total
Sources: Federal Reserve and William Blair & Company, L.L.C.
As of end of 3Q13
14 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Bond spreads are at their lowest levels since late 2007. As global economic growth sputtered, corporate bond spreads sharply widened in the second half of 2008 and peaked in December 2008. As the global economic outlook improved, spreads narrowed from their highs to slightly better than their long-term averages. Because of increased global economic uncertainty stemming primarily from the European sovereign debt woes, bond spreads widened again in late 2011, but not nearly to the same extent as in 2008. Spreads have generally narrowed since then. As of mid-December 2013, the AAA bond spread was about 25 basis points below its long-term average and the high-yield bond spread was 180 basis points below its long-term average, likely because investors are searching for yield in the current low-rate environment.
0
500
1000
1500
2000
2500
Jan-
97Au
g-97
Mar
-98
Oct
-98
May
-99
Dec
-99
Jul-0
0Fe
b-01
Sep-
01Ap
r-02
Nov
-02
Jun-
03Ja
n-04
Aug-
04M
ar-0
5O
ct-0
5M
ay-0
6D
ec-0
6Ju
l-07
Feb-
08Se
p-08
Apr-0
9N
ov-0
9Ju
n-10
Jan-
11Au
g-11
Mar
-12
Oct
-12
May
-13
Dec
-13
Basi
s Po
ints
Exhibit 6Option-Adjusted Spread Trends of the Merrill Lynch AAA, BBB, and
High-Yield Corporate Bond IndicesDaily From 1/3/1997 Through 12/19/2013
AAA BBB High-Yield
Sources: Bloomberg and William Blair & Company, L.L.C.
0
500
1,000
1,500
2,000
2,500
Jan-
97Ju
l-97
Jan-
98Ju
l-98
Jan-
99Ju
l-99
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12
Bas
is P
oint
s
Exhibit 7Option Adjusted Spread Trends of the Merrill Lynch AAA, BBB, and
High Yield Corporate Bond IndicesWeekly Since 1997 Through 12/19/2013
AAA BBB High Yield
Sources: Bloomberg and William Blair & Company, L.L.C.
15 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
LIBOR rates are generally in line with their historical relationships with the federal funds target rate. LIBOR rates increased slightly in the second half of 2011 but have generally and modestly trended downward since. The LIBOR rates and respective spreads to Treasuries remain well below their October 2008 highs. Historically, one-month LIBOR (0.16% as of December 20) has closely tracked the federal funds target rate, which is 0.00%-0.25%. At December 20, the TED spread (three-month LIBOR less three-month Treasury) has been below its long-term historical median since September 2012.
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
7/1/
088/
19/0
810
/7/0
811
/25/
081/
13/0
93/
3/09
4/21
/09
6/11
/09
7/30
/09
9/17
/09
11/5
/09
12/2
4/09
2/11
/10
4/1/
105/
20/1
07/
8/10
8/26
/10
10/1
4/10
12/2
/10
1/20
/11
3/10
/11
4/28
/11
6/16
/11
8/4/
119/
12/1
110
/27/
1112
/15/
112/
2/12
3/22
/12
5/10
/12
6/28
/12
8/16
/12
10/4
/12
11/2
2/12
1/10
/13
2/28
/13
4/16
/13
6/6/
137/
25/1
39/
12/1
310
/31/
1312
/19/
13
%
Exhibit 8Daily Interest Rates/Yields, July 1, 2008, to Present
LIBOR Overnight LIBOR 1 Month
LIBOR 3 Month LIBOR 1 Year
2-Year Swap U.S. Treasury 3 Month
Sources: Bloomberg and William Blair & Company, L.L.C.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
1/1/
024/
12/0
27/
24/0
211
/4/0
22/
13/0
35/
27/0
39/
5/03
12/1
7/03
3/29
/04
7/8/
0410
/19/
041/
28/0
55/
11/0
58/
22/0
512
/1/0
53/
14/0
66/
23/0
610
/4/0
61/
15/0
74/
26/0
78/
7/07
11/1
6/07
2/27
/08
6/9/
089/
18/0
812
/30/
084/
10/0
97/
24/0
911
/4/0
92/
15/1
05/
27/1
09/
7/10
12/1
7/10
3/30
/11
7/11
/11
10/6
/11
1/17
/12
4/27
/12
8/8/
1211
/19/
122/
28/1
36/
11/1
39/
20/1
3
Exhibit 9Federal Funds Rate and LIBOR 1-Month Rate
LIBOR 1 MonthFed Funds Rate
Sources: Bloomberg and William Blair & Company, L.L.C.
16 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
-100
0
100
200
300
400
500
Jan-
00Ap
r-00
Aug-
00D
ec-0
0Ap
r-01
Aug-
01D
ec-0
1Ap
r-02
Jul-0
2N
ov-0
2M
ar-0
3Ju
l-03
Nov
-03
Mar
-04
Jul-0
4N
ov-0
4Fe
b-05
Jun-
05O
ct-0
5Fe
b-06
Jun-
06O
ct-0
6Fe
b-07
May
-07
Sep-
07Ja
n-08
May
-08
Sep-
08Ja
n-09
May
-09
Sep-
09D
ec-0
9Ap
r-10
Aug-
10D
ec-1
0Ap
r-11
Aug-
11N
ov-1
1M
ar-1
2Ju
l-12
Nov
-12
Mar
-13
Jul-1
3O
ct-1
3
Basi
s Po
ints
Exhibit 10TED Spread, 2000 to Present
Ted Spread basis Average
Median
Sources: Bloomberg and William Blair & Company, L.L.C.
Corporate pro its as a percentage of U.S. GDP remain steady near recent relative highs and comparable to pre-downturn levels. Corporate pretax pro its were 13.5% of GDP in third quar-ter 2013, generally lat with the prior six quarters. The historical average contribution is 9.6%. Corporate pro its as a percentage of GDP troughed at 6.2% in fourth quarter 2008 and rebounded about as quickly as they fell.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
194
7-I
194
9-I
195
1-I
195
3-I
195
5-I
195
7-I
195
9-I
196
1-I
196
3-I
196
5-I
196
7-I
196
9-I
197
1-I
197
3-I
197
5-I
197
7-I
197
9-I
198
1-I
198
3-I
198
5-I
198
7-I
198
9-I
199
1-I
199
3-I
199
5-I
199
7-I
199
9-I
200
1-I
200
3-I
200
5-I
200
7-I
200
9-I
201
1-I
2013
-I
Exhibit 11Pretax Corporate Profits as % of GDP
Pretax Corporate Profits Average
Sources: U.S. Bureau of Economic Analysis and William Blair & Company, L.L.C.
17 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Consumer credit, excluding mortgages, has exhibited 35 consecutive months of year-over-year growth as of October 2013, and is at a record high of $3.1 trillion. The growth comes despite relatively tight lending standards and consumer deleveraging, which in addition to high charge-off rates, led to the 22-month decline in total consumer credit that ended in December 2010. Total non-mortgage consumer credit grew 6.3% year-over-year and 5% sequentially on an annualized basis, to $3.1 trillion in October 2013. Revolving credit grew 4% sequentially (annualized) and 1.1% year-over-year. It is down 18% from its December 2008 peak of $1.01 trillion, to $0.82 trillion. We expect revolving credit to exhibit modest growth (1%-3%) in 2014. Nonrevolving debt (primarily auto and student loans) grew 8.4% year-over-year and 5.3% sequentially (annualized), to $2.23 trillion in October. Mortgage debt outstanding totaled $9.37 trillion as of the end of third quarter 2013, down 0.8% year-over-year. Mortgage debt accounts for about 75% of total consumer credit outstanding.
-20%
-10%
0%
10%
20%
30%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Jan-
79
Jan-
81
Jan-
83
Jan-
85
Jan-
87
Jan-
89
Jan-
91
Jan-
93
Jan-
95
Jan-
97
Jan-
99
Jan-
01
Jan-
03
Jan-
05
Jan-
07
Jan-
09
Jan-
11
Jan-
13
Mill
ions
Exhibit 12Consumer Credit Outstanding excluding Mortgages (NSA)
Since January 1979
Total Consumer CreditYear-Over-Year Change
Sources: Federal Reserve and William Blair & Company, L.L.C.
-20%
-10%
0%
10%
20%
30%
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
Jan-
79
Jan-
81
Jan-
83
Jan-
85
Jan-
87
Jan-
89
Jan-
91
Jan-
93
Jan-
95
Jan-
97
Jan-
99
Jan-
01
Jan-
03
Jan-
05
Jan-
07
Jan-
09
Jan-
11
Jan-
13
Mill
ions
Exhibit 13Revolving Credit Outstanding (NSA) Since January 1979
Revolving
Sources: Federal Reserve and William Blair & Company, L.L.C.
18 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
-10%
-5%
0%
5%
10%
15%
20%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Jan-
79
Jan-
81
Jan-
83
Jan-
85
Jan-
87
Jan-
89
Jan-
91
Jan-
93
Jan-
95
Jan-
97
Jan-
99
Jan-
01
Jan-
03
Jan-
05
Jan-
07
Jan-
09
Jan-
11
Jan-
13
Mill
ions
Exhibit 14Nonrevolving Credit Outstanding (NSA) Since January 1979
Nonrevolving
Sources: Federal Reserve and William Blair & Company, L.L.C.
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
1990
1993
1996
1999
2Q01
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
4Q11
3Q12
2Q13
$ B
illio
ns
Exhibit 15Total Outstanding U.S. Consumer Debt (S.A.)
Mortgages
Nonrevolving Debt
Revolving Debt
Sources: Federal Reserve and William Blair & Company, L.L.C.
19 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
U.S. consumer bankruptcy ilings have been down year-over-year for 35 consecutive months.We view this as an indicator of improving consumer health. Filings were down year-over-year in October 2010 for the irst time since 2006, an easy comparison year because of the October 2005 bankruptcy law change. November 2013 consumer bankruptcies of 70,966 were down 14% year-over-year. The improvement comes despite the relatively high unemployment rate and is being driven by a rapidly deleveraging consumer and improvement in jobless claims, in our view. Before the bankruptcy law change in October 2005, monthly ilings generally ranged from about 125,000 to 150,000.
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
Oct
-05
Jan-
06Ap
r-06
Jul-0
6O
ct-0
6Ja
n-07
Apr-0
7Ju
l-07
Oct
-07
Jan-
08Ap
r-08
Jul-0
8O
ct-0
8Ja
n-09
Apr-0
9Ju
l-09
Oct
-09
Jan-
10Ap
r-10
Jul-1
0O
ct-1
0Ja
n-11
Apr-1
1Ju
l-11
Oct
-11
Jan-
12Ap
r-12
Jul-1
2O
ct-1
2Ja
n-13
Apr-1
3Ju
l-13
Oct
-13
Exhibit 16Monthly U.S. Nonbusiness Bankruptcies Since October 2005
Sources: Bloomberg, National Bankruptcy Research Center, and William Blair & Company, L.L.C.
Bankruptcy Law Change of October 2005Filings totaled 645,575 for the month
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
Dec
-06
Mar
-07
Jun-
07Se
p-07
Dec
-07
Mar
-08
Jun-
08Se
p-08
Dec
-08
Mar
-09
Jun-
09Se
p-09
Dec
-09
Mar
-10
Jun-
10Se
p-10
Dec
-10
Mar
-11
Jun-
11Se
p-11
Dec
-11
Mar
-12
Jun-
12Se
p-12
Dec
-12
Mar
-13
Jun-
13Se
p-13
Exhibit 17U.S. Nonbusiness Bankruptcies
Year-Over-Year Change Since Dec. 2006
Sources: Bloomberg, National Bankruptcy Research Center, and William Blair & Company, L.L.C.
20 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0
25,000
50,000
75,000
100,000
125,000
150,000
175,000
200,000
Apr-9
9O
ct-9
9Ap
r-00
Oct
-00
Apr-0
1O
ct-0
1Ap
r-02
Oct
-02
Apr-0
3O
ct-0
3Ap
r-04
Oct
-04
Apr-0
5O
ct-0
5Ap
r-06
Oct
-06
Apr-0
7O
ct-0
7Ap
r-08
Oct
-08
Apr-0
9O
ct-0
9Ap
r-10
Oct
-10
Apr-1
1O
ct-1
1Ap
r-12
Oct
-12
Apr-1
3O
ct-1
3
Exhibit 18Monthly U.S. Nonbusiness Bankruptcies Since April 1999
Sources: Bloomberg, National Bankruptcy Research Center, and William Blair & Company, L.L.C.
Bankruptcy law change of October 2005filings totaled 645,575 for the month
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
350%
400%
Apr-0
0Se
p-00
Feb-
01Ju
l-01
Dec
-01
May
-02
Oct
-02
Mar
-03
Aug-
03Ja
n-04
Jun-
04N
ov-0
4Ap
r-05
Sep-
05Fe
b-06
Jul-0
6D
ec-0
6M
ay-0
7O
ct-0
7M
ar-0
8Au
g-08
Jan-
09Ju
n-09
Nov
-09
Apr-1
0Se
p-10
Feb-
11Ju
l-11
Dec
-11
May
-12
Oct
-12
Mar
-13
Aug-
13
Exhibit 19U.S. Nonbusiness Bankruptcies
Year-Over-Year Change Since April 2000
Sources: Bloomberg, National Bankruptcy Research Center, and William Blair & Company, L.L.C.
21 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
U.S. public debt has spiked as the private sector deleverages. The national debt of the United States stood at $17.2 trillion as of December 26, 2013, up from $16.4 trillion at the end of 2012 and $9.0 trillion at the end of 2007. Public debt totaled 103% of average quarterly GDP as of December 26, 2013, which is encouragingly down from 105% at the end of 2012 but well above the 2007 level of 64% as well as its recent relative high of 67% in 1995 and 1996. The all-time high of 121% of GDP occurred in 1946.
0%
20%
40%
60%
80%
100%
120%
140%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
1929
1931
1933
1935
1937
1939
1941
1943
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Publ
ic D
ebt %
of G
DP
Tota
l Pub
lic D
ebt (
$ Bi
llions
)
Exhibit 20Public Debt
Public Debt Public Debt % GDP
Sources: U.S. Treasury and William Blair & Company, L.L.C.
2013 Public Debt as of December 26
The increase in the public debt outstanding has been partly driven by greater use of the federal government’s safety nets and social welfare programs during the economic downturn, as well as from rising healthcare costs (i.e., Medicare and Medicaid bene its). Government sources in personal income stood at 17.0% of the total in third quarter 2013, up from 14.2% at the end of 2007.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
1Q19
47
1Q19
52
1Q19
57
1Q19
62
1Q19
67
1Q19
72
1Q19
77
1Q19
82
1Q19
87
1Q19
92
1Q19
97
1Q20
02
1Q20
07
1Q20
12
Exhibit 21Personal Income Received From Government Payments
MedicareMedicaidOtherUnemployment InsuranceVeterans' BenefitsSocial Security
Sources: Bureau of Economic Analysis and William Blair & Company, L.L.C.
22 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The government’s social insurance de icit has ballooned. The government ran a relatively balanced social insurance budget until 2000. Driven by a retiring baby boomer population, rising healthcare costs, and high unemployment, the social insurance de icit has ballooned to record levels. The recent but relatively modest improvement is likely due to an improving employment environ-ment. Higher taxes and lower healthcare reimbursement rates are likely future consequences.
-$1,000
-$800
-$600
-$400
-$200
$0
$2001Q
1947
1Q19
491Q
1951
1Q19
531Q
1955
1Q19
571Q
1959
1Q19
611Q
1963
1Q19
651Q
1967
1Q19
691Q
1971
1Q19
731Q
1975
1Q19
771Q
1979
1Q19
811Q
1983
1Q19
851Q
1987
1Q19
891Q
1991
1Q19
931Q
1995
1Q19
971Q
1999
1Q20
011Q
2003
1Q20
051Q
2007
1Q20
091Q
2011
1Q20
13
Exhibit 22Government Social Insurance Contributions Less Payouts
($ in billions)
Sources: Bureau of Economic Analysis and William Blair & Company, L.L.C.
Employer and employee social insurance contributions less governtment transfer receipts (Social Security, Medicaid, Medicare, unemployment insurance, veterans' benefits, and other)
23 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
On a rolling-four-week average basis, weekly initial jobless claims have been below 350,000—a level that we view as healthy—for most of 2013. Weekly jobless claims, which we view as a more-important indicator than the monthly employment report, are down about 50% from their March 2009 highs. Initial jobless claims, on a four-week average basis, have ranged from 305,000 to 369,000 in 2013. The most recent four-week average of 357,000 is slightly above the 300,000-350,000 range we consider healthy. We are encouraged by the generally improving directional trend. However, we believe a negative signal would be sent if the number of claims were to increase materially from current levels. Our analysis shows that consumer credit trends, particularly credit card credit trends, have a higher correlation with initial jobless claims than the overall unemployment rate.
100
200
300
400
500
600
700
800
Jan-
67
Jan-
69
Jan-
71
Jan-
73
Jan-
75
Jan-
77
Jan-
79
Jan-
81
Jan-
83
Jan-
85
Jan-
87
Jan-
89
Jan-
91
Jan-
93
Jan-
95
Jan-
97
Jan-
99
Jan-
01
Jan-
03
Jan-
05
Jan-
07
Jan-
09
Jan-
11
Jan-
13
Thou
sand
s
Exhibit 23Initial Unemployment Claims (SA)
Four-Week Average Since 1967
Sources: U.S. Department of Labor and William Blair & Company, L.L.C.
Through 1/2/2014 release
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Jan-
68Ja
n-70
Jan-
72Ja
n-74
Jan-
76Ja
n-78
Jan-
80Ja
n-82
Jan-
84Ja
n-86
Jan-
88Ja
n-90
Jan-
92Ja
n-94
Jan-
96Ja
n-98
Jan-
00Ja
n-02
Jan-
04Ja
n-06
Jan-
08Ja
n-10
Jan-
12
Exhibit 24Initial Unemployment Claims (SA)
Year-Over-Year Percentage Change in Four-Week Average
Sources: U.S. Department of Labor and William Blair & Company, L.L.C.
Through 1/2/2014 release
24 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Continuing jobless claims have declined sharply from the peak but remain slightly above healthy levels, in our view. Based on historical unemployment claim patterns and current initial jobless claim levels, we expect continuing claims to continue to modestly improve in 2014. We view healthy levels at about 2.5 million. The four-week average as of December 21 was 2.9 million.
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000Ja
n-67
Jan-
69Ja
n-71
Jan-
73Ja
n-75
Jan-
77Ja
n-79
Jan-
81Ja
n-83
Jan-
85Ja
n-87
Jan-
89Ja
n-91
Jan-
93Ja
n-95
Jan-
97Ja
n-99
Jan-
01Ja
n-03
Jan-
05Ja
n-07
Jan-
09Ja
n-11
Jan-
13
Thou
sand
sExhibit 25
Continuing Unemployment Claims (SA)Four-Week Average Since 1967
Sources: U.S. Department of Labor and William Blair & Company, L.L.C.
Through 1/2/2014 release
-60%-40%-20%
0%20%40%60%80%
100%120%140%
Jan-
68Ja
n-70
Jan-
72Ja
n-74
Jan-
76Ja
n-78
Jan-
80Ja
n-82
Jan-
84Ja
n-86
Jan-
88Ja
n-90
Jan-
92Ja
n-94
Jan-
96Ja
n-98
Jan-
00Ja
n-02
Jan-
04Ja
n-06
Jan-
08Ja
n-10
Jan-
12
Exhibit 26Continuing Unemployment Claims (SA)
Year-Over-Year Percentage Change in Four-Week Average
Sources: U.S. Department of Labor and William Blair & Company, L.L.C.
Through 1/2/2014 release
25 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Monthly unemployment rate is on the decline but remains well above healthy levels. The unemployment rate improved 30 basis points in November, to 7.0%, as the increase in the num-ber of people employed more than offset the increase in the size of the workforce. The November unemployment rate is the lowest it has been since November 2008. The Federal Reserve’s unem-ployment rate forecast, as of December 18, is 7.0%-7.1% for fourth quarter 2013, 6.3%-6.6% for fourth quarter 2014, 5.8%-6.1% for fourth quarter 2015, and 5.3%-5.8% for 2016, which compare with its September forecast of 7.1%-7.3% for 2013, 6.4%-6.8% for 2014, 5.9%-6.2% for 2015, and 5.4%-5.9% for 2016.
3%
4%
5%
6%
7%
8%
9%
10%
11%
Jan-
75
Jan-
77
Jan-
79
Jan-
81
Jan-
83
Jan-
85
Jan-
87
Jan-
89
Jan-
91
Jan-
93
Jan-
95
Jan-
97
Jan-
99
Jan-
01
Jan-
03
Jan-
05
Jan-
07
Jan-
09
Jan-
11
Jan-
13
Exhibit 27Historical Unemployment Rate (%)
Sources: Bureau of Labor Statistics amd William Blair & Company, L.L.C.
The number of job openings continues to improve. According to the U.S. Department of Labor, there were 3.9 million job openings as of October 2013 (according to the latest available data), up 7.7% year-over-year and comfortably above the July 2009 low of 2.2 million.
-50%-40%-30%-20%-10%0%10%20%30%40%50%
0
1,000
2,000
3,000
4,000
5,000
6,000
Jan-
01A
ug-0
1M
ar-0
2O
ct-0
2M
ay-0
3D
ec-0
3Ju
l-04
Feb-
05S
ep-0
5A
pr-0
6N
ov-0
6Ju
n-07
Jan-
08A
ug-0
8M
ar-0
9O
ct-0
9M
ay-1
0D
ec-1
0Ju
l-11
Feb-
12S
ep-1
2A
pr-1
3
Thou
sand
s
Exhibit 28Job Openings
Job OpeningsYear-Over-Year Change
Sources: Bureau of Labor Statistics and William Blair & Company, L.L.C.
26 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The U.S. civilian workforce has been relatively lat over the past year and is modestly above pre-recession levels. The number of people employed declined sharply from September 2008 to January 2010 when it resumed modest growth.
130,000
135,000
140,000
145,000
150,000
155,000
160,000
Jan-
01Ju
n-01
Nov
-01
Apr-0
2Se
p-02
Feb-
03Ju
l-03
Dec
-03
May
-04
Oct
-04
Mar
-05
Aug-
05Ja
n-06
Jun-
06N
ov-0
6Ap
r-07
Sep-
07Fe
b-08
Jul-0
8D
ec-0
8M
ay-0
9O
ct-0
9M
ar-1
0Au
g-10
Jan-
11Ju
n-11
Nov
-11
Apr-1
2Se
p-12
Feb-
13Ju
l-13
Exhibit 29Civilian Labor Force and Employed, 2001 to Present
Civilian Labor Force
Sources: Bureau of Labor Statistics and William Blair & Company, L.L.C.
The percentage of the population in the labor force has trended sharply down since early 2009, which we partly attribute to the baby boomers starting to reach retirement coupled with the economic recession. The decline in the workforce is helping drive improvement in the unemployment rate.
62.0%
63.0%
64.0%
65.0%
66.0%
67.0%
68.0%
89.0%
90.0%
91.0%
92.0%
93.0%
94.0%
95.0%
96.0%
97.0%
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
% o
f Pop
ulat
ion
in L
abor
For
ce
% o
f Lab
or F
orce
Em
ploy
ed
Exhibit 30Employment Ratio, 1976 to Present
% of Labor Force Employed
% of Population in Labor Force
Sources: Bureau of Labor Statistics and William Blair & Company, L.L.C.
27 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Part-time employment for economic reasons is trending lower but remains high based on historical levels. We believe the relatively high level of part-time employment is indicative of people’s willingness and need to work but their inability to ind full-time employment given the current economic environment as well as businesses’ higher costs for full-time labor relative to part-time labor (e.g., healthcare costs).
3,0003,5004,0004,5005,0005,5006,0006,5007,0007,5008,0008,5009,0009,500
10,000
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
Part-
Tim
e fo
r Eco
nom
ic R
easo
nsExhibit 31
Part-Time Employment for Economic Reasons, 2001 to Present
Sources: Bureau of Labor Statistics and William Blair & Company, L.L.C.
The median number of weeks a person is unemployed has started to exhibit modest improvement but remains quite high, which we attribute to the lack of job openings and the extension of unem-ployment insurance bene its to a record-high 99 weeks, although the maximum varies by state. On December 28, Congress failed to garner enough votes to keep the unemployment insurance bene it extension and will revert back to the 26-week maximum.
0
5
10
15
20
25
30
35
40
45
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
Exhibit 32Weeks Unemployed
Average Median
Sources: Bureau of Labor Statistics and William Blair & Company, L.L.C.
28 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Increase in temporary help employment has been relatively steady since mid-2011. We view temporary help employment as a leading indicator of overall employment, and ultimately, economic growth. Encouragingly, temporary help employment has increased month-over-month in 48 of the past 53 months. The correlation between temporary help employment and nonfarm payrolls on a three-month-lag basis is nearly 0.8.
-6%-5%-4%-3%-2%-1%0%1%2%3%4%
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
%C
hang
e
Sources: Bureau of Labor Statistics and William Blair & Company, L.L.C.
Exhibit 33Employment in Temporary Help Services (SA)
Month-Over-Month Percentage Change
-140-120-100
-80-60-40-20
020406080
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
Thou
sand
s
Exhibit 34Employment in Temporary Help Services (SA)
Month-Over-Month Change
Sources: Bureau of Labor Statistics and William Blair & Company, L.L.C.
29 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The personal savings rate of 4.8% in October is just below the 5.0% monthly average of the past years and compares with the long-term average (since January 1959) of 8.4%. We believe a sustained personal savings rate in the 6%-8% range is best for the long-term health of the U.S. consumer and economy.
0
2
4
6
8
10
12
14
16
18Ja
n-59
Jan-
61Ja
n-63
Jan-
65Ja
n-67
Jan-
69Ja
n-71
Jan-
73Ja
n-75
Jan-
77Ja
n-79
Jan-
81Ja
n-83
Jan-
85Ja
n-87
Jan-
89Ja
n-91
Jan-
93Ja
n-95
Jan-
97Ja
n-99
Jan-
01Ja
n-03
Jan-
05Ja
n-07
Jan-
09Ja
n-11
Jan-
13
Exhibit 35Savings as a Percentage of Disposable Income
Monthly (January 1959 to October 2013)
Sources: Bureau of Economic Analysis, Bloomberg, and William Blair & Company, L.L.C.
Average Since 1959 = 8.4%Average Since 1990 = 5.5%
-5
0
5
10
15
20
25
30
1929
1931
1933
1935
1937
1939
1941
1943
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Exhibit 36Savings as a Percentage of Disposable Income Annually (1929-2012)
Sources: Bureau of Economic Analysis and William Blair & Company, L.L.C.
Average since 1929: 7.4%Average of past 20 years: 4.0%
30 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Consumer leverage is at its lowest level since the early 1980s and appears to be leveling off. The consumer debt services burden and inancial obligation ratios have declined sharply from their record highs prior to the recession, driven by record-low interest rates, defaults, and higher savings rates. The consumer debt service burden ratio has fallen from its record high of 13.2% in fourth quarter 2007 to 9.9% in third quarter 2013, the lowest on record dating back to 1980. The inancial obligations ratio has fallen from its record high of 18.1% in fourth quarter 2007 to 15.4% in third quarter 2013. We expect the ratios to stabilize around current levels, which we view as healthy.
910111213141516171819
1Q80
1Q81
1Q82
1Q83
1Q84
1Q85
1Q86
1Q87
1Q88
1Q89
1Q90
1Q91
1Q92
1Q93
1Q94
1Q95
1Q96
1Q97
1Q98
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
(%)
Exhibit 37Consumer Debt Services and Financial Obligations Ratios
Debt Service Ratio Financial Obligations Ratio
Sources: Federal Reserve and William Blair & Company, L.L.C.
Retail sales growth has been relatively stable since mid-2012 and is slightly below the long-term average. Retail sales grew 4.7% year-over-year and 8.2% month-over-month annualized in November 2013. The long-term average year-over-year growth rate is 6.46%. The December 2008 decline of 11.5% was the sharpest fall since the U.S. Department of Commerce began tracking the data in 1968.
-15%
-10%
-5%
0%
5%
10%
15%
20%
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Jan-68
Jan-71
Jan-74
Jan-77
Jan-80
Jan-83
Jan-86
Jan-89
Jan-92
Jan-95
Jan-98
Jan-01
Jan-04
Jan-07
Jan-10
Jan-13
(Billi
ons)
Exhibit 38Retail Sales (SA) and Year-Over-Year Change
Retail Sales Year-Over-Year Change
Sources: U.S .Dept. of Commerce and William Blair & Company, L.L.C.
31 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
E-commerce market share continues to grow. U.S. third quarter 2013 e-commerce sales grew 17.5% year-over-year, according to the U.S. Census Bureau. This compares with 4.7% in overall U.S. retail sales. As a percentage of overall U.S. retail sales, e-commerce market share was 5.9%, up from 5.2% a year prior.
$27,388$34,093
$44,354$56,775$72,100
$90,528
$111,935$134,567
$140,158$142,604
$165,770
$192,911
$224,280
$193,378
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
$0
$50,000
$100,000
$150,000
$200,000
$250,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
9m E
nded
9/30
/13
Exhibit 39U.S. E-Commerce Growth and Percentage of Total Retail Sales
($ in millions)
E-commerce Sales (L-Axis)
% of Total Retail Sales (R-Axis)
E-commerce Year-Over-Year Growth(R-Axis)
Sources: U.S. Census and William Blair & Company, L.L.C.
32 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The November reading of the Discover U.S. Spending Survey Index improved from October on better spending intentions despite a continued relatively dismal economic sentiment. The economic outlook of consumers had plummeted with the temporary government shutdown and has yet to recover. Spending intentions have increased the past couple of months but have been relatively stable over the past year.
60
65
70
75
80
85
90
95
100
105
May
-07
Jul-0
7Se
p-07
Nov
-07
Jan-
08M
ar-0
8M
ay-0
8Ju
l-08
Sep-
08N
ov-0
8Ja
n-09
Mar
-09
May
-09
Jul-0
9Se
p-09
Nov
-09
Jan-
10M
ar-1
0M
ay-1
0Ju
l-10
Sep-
10N
ov-1
0Ja
n-11
Mar
-11
May
-11
Jul-1
1Se
p-11
Nov
-11
Jan-
12M
ar-1
2M
ay-1
2Ju
l-12
Sep-
12N
ov-1
2Ja
n-13
Mar
-13
May
-13
Jul-1
3Se
p-13
Nov
-13
Inde
x V
alue
s (5
/07
=10
0)Exhibit 40
Discover U.S. Consumer Spending Monitor
Index
Spending
Economy
Sources: Discover Financial Services and William Blair & Company, L.L.C.
U.S. bank revolving credit (home equity) outstanding has been declining since June 2009. Home equity loans could continue to cause headaches for lenders for a couple more years.
-20%
-10%
0%
10%
20%
30%
40%
50%
$0
$100
$200
$300
$400
$500
$600
$700
Jan-
88Ja
n-89
Jan-
90Ja
n-91
Jan-
92Ja
n-93
Jan-
94Ja
n-95
Jan-
96Ja
n-97
Jan-
98Ja
n-99
Jan-
00Ja
n-01
Jan-
02Ja
n-03
Jan-
04Ja
n-05
Jan-
06Ja
n-07
Jan-
08Ja
n-09
Jan-
10Ja
n-11
Jan-
12Ja
n-13
Billio
ns
Exhibit 41U.S. Banks' Revolving Credit (Home Equity)
Home Equity Revolving Credit
Year-Over-Year Change
Sources: Federal Reserve and William Blair & Company, L.L.C..
33 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The Manheim Used Vehicle Value Index shows used vehicle values have moderated from their 2011 record highs but continue to be relatively strong. The November 2013 Manheim Used Vehicle Value Index declined 0.2% but was up 0.1% from the prior month. We believe the relative strength of the index over the past several years has been indicative of the supply/demand imbal-ance of used vehicles, which is the result of several factors, such as consumers trading down and consumers holding onto their cars longer. The index is an excellent approximation of the trends in used-car values and recovery rates on repossessed vehicles, as it represents actual prices of used cars sold at auctions across the United States. Higher used-car values drive better recovery rates in an auto inance business.
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
90
95
100
105
110
115
120
125
130
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Inde
x
Exhibit 42Manheim Used Vehicle Value Index
Index Year-Over-Year Change
Sources: Manheim Consulting and William Blair & Company, L.L.C.
Index Value (Jan '95 = 100)
34 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Essentially all credit card issuers’ master trusts that we track had generally stable credit trends and early signs of accelerating loan growth in November. Delinquency rates (30-plus days) appear to be stabilizing at record lows. The industry charge-off rate is near a record low, but material further improvement is unlikely. Based on the delinquency rate trend, we believe the charge-off rate is likely to remain near the current level into mid-2014 and likely to remain below the long-term average for an extended period. Payment rates have leveled off slightly below record-high levels. The increase in payment rates to record highs has been driven by the deleveraging consumer and a modestly improving economic environment. The net interest margin signi icantly increased off its low in late 2008, primarily because of the sharp decline in the base rate and issuers re-pricing; however, increased competition caused yields to come down, bringing the net interest margin down somewhat from its record high, although it remains comfortably above prerecession levels. Most issuers are increasingly using deposit funding to fund their card portfolios; thus, we are not surprised by the decline in the trust receivables outstanding for the group. Due to the decline in securitization activity, some trust metrics, such as receivable growth, are not re lective of the broader industry. Revolving credit as reported by the Federal Reserve was up 1.1% year-over-year in October 2013, the latest igure available.
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Jan-
01Ju
n-01
Nov
-01
Apr-0
2Se
p-02
Feb-
03Ju
l-03
Dec
-03
May
-04
Oct
-04
Mar
-05
Aug-
05Ja
n-06
Jun-
06N
ov-0
6Ap
r-07
Sep-
07Fe
b-08
Jul-0
8D
ec-0
8M
ay-0
9O
ct-0
9M
ar-1
0Au
g-10
Jan-
11Ju
n-11
Nov
-11
Apr-1
2Se
p-12
Feb-
13Ju
l-13
Exhibit 43U.S. Credit Card Three-Month Average Excess Spread (%)
Sources: Company reports, Bloomberg, and William Blair & Company, L.L.C.
- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0
10.0 11.0
Dec
-00
Jun-
01D
ec-0
1Ju
n-02
Dec
-02
Jun-
03D
ec-0
3Ju
n-04
Dec
-04
Jun-
05D
ec-0
5Ju
n-06
Dec
-06
Jun-
07D
ec-0
7Ju
n-08
Dec
-08
Jun-
09D
ec-0
9Ju
n-10
Dec
-10
Jun-
11D
ec-1
1Ju
n-12
Dec
-12
Jun-
13
Exhibit 44U.S. Credit Card Net Charge-off Rate (%)
Sources: Company reports, Bloomberg, and William Blair & Company, L.L.C.
35 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
14.0
16.0
18.0
20.0
22.0
24.0
26.0
Dec
-00
Jun-
01D
ec-0
1Ju
n-02
Dec
-02
Jun-
03D
ec-0
3Ju
n-04
Dec
-04
Jun-
05D
ec-0
5Ju
n-06
Dec
-06
Jun-
07D
ec-0
7Ju
n-08
Dec
-08
Jun-
09D
ec-0
9Ju
n-10
Dec
-10
Jun-
11D
ec-1
1Ju
n-12
Dec
-12
Jun-
13
Exhibit 45U.S. Credit Card Three-Month Average Payment Rate (%)
Sources: Company reports, Bloomberg, and William Blair & Company, L.L.C.
10.0
12.0
14.0
16.0
18.0
20.0
22.0
Dec
-00
Jun-
01D
ec-0
1Ju
n-02
Dec
-02
Jun-
03D
ec-0
3Ju
n-04
Dec
-04
Jun-
05D
ec-0
5Ju
n-06
Dec
-06
Jun-
07D
ec-0
7Ju
n-08
Dec
-08
Jun-
09D
ec-0
9Ju
n-10
Dec
-10
Jun-
11D
ec-1
1Ju
n-12
Dec
-12
Jun-
13
Exhibit 46U.S. Credit Card Three-Month Average Net Interest Margin (%)
Sources: Company reports, Bloomberg, and William Blair & Company, L.L.C.
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Dec
-00
Jun-
01D
ec-0
1Ju
n-02
Dec
-02
Jun-
03D
ec-0
3Ju
n-04
Dec
-04
Jun-
05D
ec-0
5Ju
n-06
Dec
-06
Jun-
07D
ec-0
7Ju
n-08
Dec
-08
Jun-
09D
ec-0
9Ju
n-10
Dec
-10
Jun-
11D
ec-1
1Ju
n-12
Dec
-12
Jun-
13
Exhibit 47U.S. Credit Card Total 30-Day-Plus Delinquencies (%)
Sources: Company reports, Bloomberg, and William Blair & Company, L.L.C.
36 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Commercial TrendsGrowth of U.S. exports and imports of goods is showing signs of accelerating growth after waning the past several years on dif icult comps and global growth concerns in key markets, such as Europe. The weakness in the U.S. dollar in early 2008 drove signi icant growth in U.S. ex-ports of goods; however, this trend rapidly reversed course in the second half of 2008 as the global economy slumped. As the global economy outlook improved and the U.S. dollar weakened, U.S. exports spiked at the beginning of 2009. With gradually more dif icult comparisons and heightened global growth uncertainty, the growth rate of exports and imports has faded. An acceleration in the global economy is key to an acceleration in U.S. export and import growth.
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
199
0-I
199
0-IV
199
1-III
199
2-II
199
3-I
199
3-IV
199
4-III
199
5-II
199
6-I
199
6-IV
199
7-III
199
8-II
199
9-I
199
9-IV
200
0-III
200
1-II
200
2-I
200
2-IV
200
3-III
200
4-II
200
5-I
200
5-IV
200
6-III
200
7-II
200
8-I
200
8-IV
200
9-III
201
0-II
201
1-I
201
1-IV
201
2-III
201
3-II
Exhibit 48Year-Over-Year Percentage Change of U.S. Exports and Imports of Goods
Exports Imports
Sources: U.S. Department of Commerce, Bureau of Economic Analysis, and William Blair & Company, L.L.C.
37 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The U.S. dollar has depreciated versus most other major currencies over the past several months. The U.S. dollar signi icantly appreciated off its mid-2008 lows as it became the primary currency of choice during the global economic slowdown. As the early indications of stabilization appeared in the global economy in March 2009, the U.S. dollar began to depreciate. The U.S. dollar sharply appreciated versus the euro and British pound over sovereign debt concerns in irst half 2010 but began to depreciate once the concerns subsided. With renewed European sovereign debt concerns and its potential contagion effects on global economic growth starting in mid-2011, the U.S. dollar has once again become a primary currency of choice and appreciated against most other major currencies through 2012. Since mid-2012, the exchange rate movements against the U.S. dollar have been a mixed bag.
0.300.450.600.750.901.051.201.351.501.651.801.952.10
Mar
-05
Jun-
05S
ep-0
5D
ec-0
5M
ar-0
6Ju
n-06
Sep
-06
Dec
-06
Mar
-07
Jun-
07S
ep-0
7D
ec-0
7M
ar-0
8Ju
n-08
Sep
-08
Dec
-08
Mar
-09
Jun-
09S
ep-0
9D
ec-0
9M
ar-1
0Ju
n-10
Sep
-10
Dec
-10
Mar
-11
Jun-
11S
ep-1
1D
ec-1
1M
ar-1
2Ju
n-12
Sep
-12
Dec
-12
Mar
-13
Jun-
13S
ep-1
3
Exhibit 49Foreign Exchange Rates (Foreign Currency Unit Versus U.S. Dollar)
CADYEN x 100
EURO
Yuan (RMB) x 10
GBP
Sources: Bloomberg and William Blair & Company, L.L.C.
Peso x 10
BRZ Real
AUD
As of December 20, 2013
Weekly traf ic for most carload types of major U.S. railroads has exhibited slow and steady improvement since its May 2009 trough. We believe U.S. railroad traf ic has historically been a decent indicator of the strength of the U.S. economy, given the wide variety and large volume of products transported via rail. Railroad traf ic for carloads of most products, as reported by the As-sociation of American Railroads, is up low-single digits year-over-year through mid-December. Rail traf ic has returned to pre-downturn levels for most carload types, and some carload types, such as chemicals, petroleum, and containers, are at record levels.
On a cumulative year-to-date basis through December 14, total rail traf ic was up 1.7%, as measured by total carloads and intermodal units originated. Total carloads were down 0.6%, while intermodal units were up 4.6%. Coal, which accounts for 21% of total carloads and intermodal units combined, is the primary driver of the year-over-year decline in carloads originated as it is down 4.4% year-over-year. Excluding coal, rail traf ic is up 3.5% year-over-year. Coal has been weak in 2013 because of the abnormally warm winter weather early in the year, which reduced demand; the relative cost of natural gas, which is a substitute for coal; a decline in export demand; and the current federal government administration policies.
38 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1Q97
1Q98
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
GDP Carloads
Sources: Association of American Railroads, Bloomberg, and William Blair & Company, L.L.C.
Exhibit 50Year-Over-Year Growth of GDP Versus Total Rail Carloads and Intermodel Units
2012 YTD 2013 YTD % chgCarloads Originated 3Q12 2Q13 3Q13Coal 1,558,810 1,417,208 1,511,817 6.7% -3.0% 5,821,428 5,562,557 -4.4%Chemicals/Petroleum Products 523,635 570,870 552,646 -3.2% 5.5% 1,995,195 2,165,264 8.5%Motor Vehicles & Equipment 189,247 220,907 198,362 -10.2% 4.8% 782,144 821,656 5.1%Total Carloads Originated 3,716,542 3,647,026 3,724,268 2.1% 0.2% 14,178,362 14,089,007 -0.6%
Intermodal Units Originated 3,150,778 3,185,405 3,277,326 2.9% 4.0% 11,860,632 12,403,723 4.6%
Total Carloads & Intermodal Originated 6,867,320 6,832,431 7,001,594 2.5% 2.0% 26,038,994 26,492,730 1.7%Sources: Association of American Railroads, Bloomberg, and William Blair & Company, L.L.C.
Exhibit 51Rail Traffic of Major U.S. Railroads
Q/Q Chg
Y/Y Chg Cumulative Thru 12/13/13
39 Robert P. N
apoli +1 312 364 8496
William
Blair & Com
pany, L.L.C.
Rail Traffic of Major U.S. RailroadsExhibit 52
120
140
160
180
200
220
240
260
280
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52Tota
l Int
erm
odal
Uni
tsTh
ousa
nds
Week
Total Intermodal Units
2007 2008 2009 2010 2011 2012 2013
Through Week Ending 12/13/13
Sources: AAR, Bloomberg, and William Blair & Company, L.L.C.
180
200
220
240
260
280
300
320
340
360
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Tota
l Car
load
sTh
ousa
nds
Week
Total Carloads Originated
2007 2008 2009 2010 2011 2012 2013
Through Week Ending 12/13/13
Sources: AAR, Bloomberg, and William Blair & Company, L.L.C.
300
350
400
450
500
550
600
650
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Tota
l Car
load
sTh
ousa
nds
Week
Total Carloads + Intermodal
2007 2008 2009 2010 2011 2012 2013
Through Week Ending 12/13/13
Sources: AAR, Bloomberg, and William Blair & Company, L.L.C.
20
25
30
35
40
45
50
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Tota
l Car
load
sTh
ousa
nds
Week
Chemical/Petroleum Carloads
2007 2008 2009 2010 2011 2012 2013
Through Week Ending 12/13/13
Sources: AAR, Bloomberg, and William Blair & Company, L.L.C.
80
90
100
110
120
130
140
150
160
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Tota
l Car
load
sTh
ousa
nds
Week
Coal
2007 2008 2009 2010 2011 2012 2013
Through Week Ending 12/13/13
Sources: AAR, Bloomberg, and William Blair & Company, L.L.C.
200
250
300
350
400
450
500
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Tota
l Car
load
sTh
ousa
nds
Week
Total Carloads + Intermodal ex Coal
2007 2008 2009 2010 2011 2012 2013
Sources: AAR, Bloomberg, and William Blair & Company, L.L.C.
Through Week Ending 12/13/13
40 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Capacity utilization is approaching its long-term average after nearly six years of being below average. The manufacturing industrial capacity utilization index stood at 78.97% in November 2013, up 75 basis points from the prior month and 111 basis points from a year earlier. It stood 70 basis points below the long-term average of 79.67%. From the beginning of 2008, the index dropped more than 12 percentage points in 18 months, bottoming at 66.81% in June 2009. The decline and the subsequent sharp rebound are evident in the rail traf ic volume trends. A capacity utilization rate above the long-term average has historically coincided with a strong U.S. economy.
67 69 71 73 75 77 79 81 83 85 87
Jan-
86
Jan-
88
Jan-
90
Jan-
92
Jan-
94
Jan-
96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
Jan-
06
Jan-
08
Jan-
10
Jan-
12
(%)
Exhibit 53Industrial Capacity Utilization
Sources: The Federal Reserve and William Blair & Company, L.L.C.
Through November 2013
The railcar manufacturing backlog is quite high, while orders and deliveries are relatively normal compared with historical averages. We would typically view the increase in the backlog as an indication of economic strength, as it indicates overall demand; however, the idle rate of the industry railcar leet remains well above “normal” levels. Thus, we believe the increase has been car-type speci ic and/or was driven by leet replacement. Some carload types (i.e., tank cars for petroleum use) are seeing record shipments, while others remain below pre-downturn levels.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1Q88
1Q90
1Q92
1Q94
1Q96
1Q98
1Q00
1Q02
1Q04
1Q06
1Q08
1Q10
1Q12
Exhibit 54Railcar Manufacturing Statistics
Sources: Railway Supply Institute, company reports, and William Blair & Company, L.L.C.
Backlogs
Orders
Deliveries
Through 3Q13
Note: Deliveries includes cancelations
41 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The railcar idle rate of the industry leet remains well above “normal” levels. As of December, 1, 282,394 (18.3%) of the roughly 1.5 million industry railcar leet were idle, according to the American Association of Railroads (AAR). The AAR has historically viewed a normal idle run-rate as 2%-3%. It would take about 57 months to reach the normal idle rate if about 4,160 (current average rate) cars were to be either removed from the leet or returned to service every month. We attribute most of the recent increase in the idle rate to the slump in demand for coal (21% of total carloads and intermodal traf ic), which is carried in open-hopper cars.
0
100,000
200,000
300,000
400,000
500,000
600,000
0%
5%
10%
15%
20%
25%
30%
35%
Mar
-09
May
-09
Jul-0
9Se
p-09
Nov
-09
Jan-
10M
ar-1
0M
ay-1
0Ju
l-10
Sep-
10N
ov-1
0Ja
n-11
Mar
-11
May
-11
Jul-1
1Se
p-11
Nov
-11
Jan-
12M
ar-1
2M
ay-1
2Ju
l-12
Sep-
12N
ov-1
2Ja
n-13
Mar
-13
May
-13
Jul-1
3Se
p-13
Nov
-13
Exhibit 55Railcars in Storage in North America
Cars in Storage
% of Total Fleet
Healthy Level
Sources: AAR and William Blair & Company, L.L.C.
-35,000
-30,000
-25,000
-20,000
-15,000
-10,000
-5,000
0
5,000
10,000
15,000
Mar
-09
May
-09
Jul-0
9
Sep
-09
Nov
-09
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep
-10
Nov
-10
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep
-11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep
-12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep
-13
Nov
-13
Exhibit 56Number of Railcars In/(Out) of Storage in North America
Sources: AAR and William Blair & Company, L.L.C.
42 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The price of scrap steel (currently $361 per metric ton) has been relatively steady for the past year at about $350. The price of scrap steel plummeted in September 2008, dropping roughly 80% from record-high levels. The price quickly rebounded, driven by strong foreign demand. The change in the price of scrap steel has historically coincided well with the economic outlook and demand.
-100%
-50%
0%
50%
100%
150%
200%
0
100
200
300
400
500
600
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
$ P
er M
etric
Ton
neExhibit 57
Price of U.S. Scrap Steel With Year-Over-Year Change
Scrap Steel Year-Over-Year Change
Sources: Bloomberg and William Blair & Company, L.L.C.
Great Lakes cargo volume is up 0.5% year-over-year on a cumulative year-to-date basis through November and is still 14% below pre-downturn levels. Shipments of raw materials used in steel production and other capacities plummeted in late 2008 and in 2009 because of the lack of demand. Volumes grew sharply in 2010. Volume in 2013 is closely tracking the volumes reported in 2010, 2011, and 2012.
-
2
4
6
8
10
12
14
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Net
Ton
s (M
illion
s)
Exhibit 58U.S.-Flag Great Lakes Carrier Total Volume
200520062007200820092010201120122013
Sources: Lake Carriers' Association and William Blair & Company, L.L.C.
43 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Global containership idle rate has begun to increase over the past several months as a result of seasonality, soft demand, and relatively strong deliveries of new containerships. As of early December 2013, the idle rate stood at 3.9%, down from the 5.0% experienced a year earlier. The all-time high was 11.7% in early December 2009. A lower idle rate generally coincides with a stronger global economy but overbuilding of containerships has made analysis much more dif icult.
0%
2%
4%
6%
8%
10%
12%
Nov-08 Jun-09 Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13
Exhibit 59Idle Rate of the Global Containership Fleet, November 2008-Present
Sources: AXS-Alphaliner, Clarkson's Research, and William Blair & Company, L.L.C.
Prior all-time high was about 5% in 1986Previous-cycle high was 3.2% in March 2002
Containership leet capacity forecast to grow faster than container trade growth. According to AXS-Alphaliner, the global containership leet capacity is expected to grow 6% in 2013, while container trade is forecast to grow about 4%.
Fleet as of:Containership Size Ships TEU Ships TEU Ships TEU Ships TEU Ships TEU Ships TEU
10,000-18,000 118 1,425,640 162 2,066,495 197 2,557,523 255 3,341,104 315 4,257,857 322 4,348,8577,500-9,999 TEU 290 2,555,320 326 2,825,749 377 3,285,605 427 3,741,036 484 4,253,410 502 4,416,3005,100-7,499 TEU 463 2,840,841 475 2,915,449 489 3,010,253 514 3,161,585 523 3,218,895 523 3,218,8954,000-5,099 TEU 701 3,167,294 739 3,339,269 761 3,444,024 786 3,563,390 796 3,611,590 797 3,616,5473,000-3,999 TEU 323 1,101,941 296 1,012,646 265 914,150 286 991,291 298 1,036,791 299 1,039,8912,000-2,999 TEU 712 1,811,511 677 1,723,561 667 1,696,725 684 1,738,174 709 1,796,155 717 1,815,5351,500-1,999 TEU 596 1,011,825 576 979,325 568 968,200 593 1,011,904 604 1,031,272 610 1,041,7521,000-1,499 TEU 699 822,994 702 823,031 681 796,983 694 810,974 706 824,532 706 824,532
500-999 TEU 809 599,199 785 583,145 765 570,721 772 576,325 773 576,931 773 576,931100-499 TEU 246 78,636 226 72,659 218 69,512 218 69,512 218 69,512 218 69,512
Total 4,957 15,415,201 4,964 16,341,329 4,988 17,313,696 5,229 19,005,295 5,426 20,676,945 5,467 20,968,752year-over-year growth 6.0% 6.0% 9.8% 8.8% 1.4%
Total after Exp. Scrap/Slip 4,957 15,415,201 4,964 16,341,329 4,981 17,285,957 5,077 18,552,556 5,192 20,059,206 5,133 20,101,013
year-over-year growth 7.9% 6.0% 5.8% 7.3% 8.1% 0.2%Sources: AXS-Alphaliner and William Blair & Company, L.L.C.
Exhibit 60Containership Fleet Projections
31-Dec-2015 31-Dec-201631-Dec-2011 31-Dec-2012 31-Dec-2013 31-Dec-2014 (as of December 1, 2013, assuming no deletions since that date other than those planned)
44 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
China manufacturing index has encouragingly exhibited an expansion reading (i.e., above 50) for the past 15 months, though barely, despite slowing growth GDP. China’s GDP growth accelerated slightly in the most recent quarter. The index stood at 51.0 in December. An index read-ing of 50 is the boundary level for expansion versus contraction.
35
40
45
50
55
60
65Ja
n-05
May
-05
Sep
-05
Jan-
06M
ay-0
6S
ep-0
6Ja
n-07
May
-07
Sep
-07
Jan-
08M
ay-0
8S
ep-0
8Ja
n-09
May
-09
Sep
-09
Jan-
10M
ay-1
0S
ep-1
0Ja
n-11
May
-11
Sep
-11
Jan-
12M
ay-1
2S
ep-1
2Ja
n-13
May
-13
Sep
-13
Exhibit 61China Manufacturing PMI
Sources: CFLP & Li & Fung Research Center
Note: An index value above 50 indicates expansion whereas an index value below 50 indicates contraction
Through December 2013
Global containerized trade growth has accelerated the past several months. Through Novem-ber on a year-to-date basis, containerized trade at 8 of the world’s top 25 busiest container ports is up 1.5%, up from 0.2% in June. Excluding Hong Kong data (Hong Kong port traf ic was adversely affected by a lengthy port strike early in 2013), year-to-date port traf ic through November was up 2.7% versus 1.9% through June. Container trade growth has been about 9%, on average, over the past 30 years and 8% over the past 10 years. Industry trade associations forecast container traf ic to be up about 4%-6% in 2013 and 2014.
6
7
8
9
10
11
12
13
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
TEU
s in
Mill
ions
Exhibit 62Monthly Container Handlings at 8 of World's Top 25 Busiest
Container Ports
2006 2007 2008 2009 2010 2011 2012 2013
Sources: Bloomberg and William Blair & Company, L.L.C.
45 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Jan-07 Jul-07Jan-08 Jul-08Jan-09 Jul-09Jan-10 Jul-10Jan-11 Jul-11Jan-12 Jul-12Jan-13 Jul-13
Exhibit 63Year-Over-Year Change of Cumulative Year-to-Date Container
Handlings at 8 of World's Top 25 Busiest Container Ports
Sources: Bloomberg and William Blair & Company, L.L.C.
-25%-20%-15%-10%
-5%0%5%
10%15%20%25%
Jan-
07Ap
r-07
Jul-0
7O
ct-0
7Ja
n-08
Apr-0
8Ju
l-08
Oct
-08
Jan-
09Ap
r-09
Jul-0
9O
ct-0
9Ja
n-10
Apr-1
0Ju
l-10
Oct
-10
Jan-
11Ap
r-11
Jul-1
1O
ct-1
1Ja
n-12
Apr-1
2Ju
l-12
Oct
-12
Jan-
13Ap
r-13
Jul-1
3O
ct-1
3
Exhibit 64Year-Over-Year Change of Monthly Container Handlings at 8 of
World's Top 25 Busiest Container Ports
Sources: Bloomberg and William Blair & Company, L.L.C.
46 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Asia accounts for 55% of global container trade volume. China container trade volume makes up the largest portion of total global container trade at 29%, followed closely by the rest of Asia at 26%. North America makes up just 8%, according to Clarkson Research, an industry trade group.
North America8%
Northern Europe11%
Mediterranean6%
China29%
Asia excluding China26%
Other20%
Exhibit 65Total Expected Trade Volume by Region for 2013
Sources: Clarkson Research and William Blair & Company, L.L.C.
Throughput growth at Chinese ports has moderated but remains comfortably above the rest of the world. Container throughput at Chinese ports is up 7.4% year-over-year on a cumulative year-to-date basis through November, down from 8.1% growth in June. China throughput has more than doubled over the past seven years—evidence of globalization, in our opinion.
4
6
8
10
12
14
16
18
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
TEU
s in
Mill
ions
Exhibit 66China Port Handlings in TEUs
2005 2006 2007 2008 2009
Sources: Bloomberg and William Blair & Company, L.L.C.
47 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
-20%
-10%
0%
10%
20%
30%
40%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
Sources: Bloomberg and William Blair & Company, L.L.C.
Exhibit 67Year-Over-Year Change in Cumulative Year-to-Date Container Traffic at Chinese Ports
-20%
-10%
0%
10%
20%
30%
40%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
Exhibit 68Year-Over-Year Change In Monthly Container Traffic at Chinese Ports
Sources: Bloomberg and William Blair & Company, L.L.C.
48 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Container trade forecasts are about 1.7 times global GDP growth estimates, slightly less than the 2-times historical relationship but generally in line with the past several years. As of October 2013, the International Monetary Fund projected global GDP to grow 2.9 % in 2013, 3.6% in 2013, and 4.1% in 2015; it forecasts global trade to grow 2.9% in 2013, 4.9% in 2014, and 6.1% in 2015. Clarkson Research forecasts container trade to grow 4.7% in 2013, 6.2% in 2014, and 7.2% in 2015.
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13E'14E'15E
Exhibit 69Annual Growth Comparison: World Trade Volume Versus
Container Liftings Versus World Real GDP
Container Liftings Total Trade VolumeWorld Real GDP
Sources: International Monetary Fund, Clarkson Research, Drewry, and William Blair & Company, L.L.C.
-15%
-10%
-5%
0%
5%
10%
15%
20%
0
100
200
300
400
500
600
700
800
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14E
Year-Over-Year G
rowth
TEU
s in
Mill
ions
Exhibit 70Global Total Port Handling
LiftingsYear-Over-Year Growth
Sources: Clarkson Research, Drewry, and William Blair & Company, L.L.C.
Commercial and industrial loans outstanding increased 0.2% sequentially and 7.8% year-over-year, to $1.59 trillion in November. Commercial and industrial loans outstanding peaked at $1.60 trillion in October 2008 before declining 25% over 21 months to a $1.20 trillion trough in July 2010. We believe the essentially nonexistent credit markets that characterized late 2008 forced banks to hold more commercial loans on their balance sheet versus securitizing them, thus distorting the growth statistics of the last cycle. Historically, the commercial and industrial loan volume has been a useful indicator of economic growth, in our opinion. Growth of commercial and industrial loans
49 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
has moderated over the past year but is in line with the long-term historical average. According to the Federal Reserve Bank Opinion Survey data, banks have loosened credit standards in 15 of the past 16 quarters and demand has increased in 11 of the past 16 quarters.
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
$400
$200,400
$400,400
$600,400
$800,400
$1,000,400
$1,200,400
$1,400,400
$1,600,400
$1,800,400
Jan-
85Ja
n-86
Jan-
87Ja
n-88
Jan-
89Ja
n-90
Jan-
91Ja
n-92
Jan-
93Ja
n-94
Jan-
95Ja
n-96
Jan-
97Ja
n-98
Jan-
99Ja
n-00
Jan-
01Ja
n-02
Jan-
03Ja
n-04
Jan-
05Ja
n-06
Jan-
07Ja
n-08
Jan-
09Ja
n-10
Jan-
11Ja
n-12
Jan-
13
Billio
ns
Exhibit 71Commercial and Industrial Loan Volume, NSA
C&I Loans Year-Over-Year Change
Sources: Federal Reserve and William Blair & Company, L.L.C.
Commercial and industrial loan credit quality is approaching historical lows. As of third quarter 2013, the commercial and industrial loan delinquency rate was 0.98% and the charge-off rate was 0.26%, which compare with the 27-year averages of 2.98% and 0.90%. Given the record-low delin-quency rate and near record-low charge-off rate trends, we do not expect any further material improve-ment; however, it is likely that credit quality would remain better than average for an extended period.
0
1
2
3
4
5
6
7
Q1
1985
Q1
1986
Q1
1987
Q1
1988
Q1
1989
Q1
1990
Q1
1991
Q1
1992
Q1
1993
Q1
1994
Q1
1995
Q1
1996
Q1
1997
Q1
1998
Q1
1999
Q1
2000
Q1
2001
Q1
2002
Q1
2003
Q1
2004
Q1
2005
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
(%)
Exhibit 72NSA Commercial Banks
Commercial and Industrial Delinquencies and Charge-Offs
Delinquencies Charge-Offs
Sources: Federal Reserve and William Blair & Company, L.L.C.
50 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Commercial real estate lending returned to growth in fourth quarter 2012 after 13 quarters of shrinkage, and the growth has accelerated the past two quarters. Commercial real estate loans outstanding totaled $1.37 trillion at the end of the third quarter, up 3.8% year-over-year but comfortably below the $1.62 trillion peak in fourth quarter 2008. Commercial real estate credit quality has been improving from its irst quarter 2010 peak and is comfortably below the long-term average. We expect credit trends to modestly improve.
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,8001Q
851Q
861Q
871Q
881Q
891Q
901Q
911Q
921Q
931Q
941Q
951Q
961Q
971Q
981Q
991Q
001Q
011Q
021Q
031Q
041Q
051Q
061Q
071Q
081Q
091Q
101Q
111Q
121Q
13
Bill
ions
Exhibit 73Commercial Real Estate Loans, NSA
CRE Loans Year-Over-Year Change
Sources: Federal Reserve and William Blair & Company, L.L.C.
-2
0
2
4
6
8
10
12
14
Q1
1991
Q1
1992
Q1
1993
Q1
1994
Q1
1995
Q1
1996
Q1
1997
Q1
1998
Q1
1999
Q1
2000
Q1
2001
Q1
2002
Q1
2003
Q1
2004
Q1
2005
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
(%)
Exhibit 74NSA Commercial Banks
Commercial Real Estate Delinquencies and Charge-Offs
Charge-Offs Delinquencies
Sources: Federal Reserve and William Blair & Company, L.L.C.
51 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The NCREIF Property Index, which measures total investment returns in the U.S. commercial real estate industry, turned positive in irst quarter 2010 after six consecutive quarterly declines. The index has been positive for 15 consecutive quarters; the past 14 have been above the long-term average of 2.2%. The third-quarter index reading was 2.48%.
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
1Q84
1Q85
1Q86
1Q87
1Q88
1Q89
1Q90
1Q91
1Q92
1Q93
1Q94
1Q95
1Q96
1Q97
1Q98
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
1Q08
1Q09
1Q10
1Q11
Exhibit 75NCREIF Property Index Historical Returns
Average: 2.0%
Sources: National Council of Real Estate Investment Fiduciaries and William Blair & Company, L.L.C.
According to the most recent Federal Reserve Bank Opinion Survey, banks have slightly loosened credit standards and demand has increased for commercial and industrial loans. Given the turmoil in the credit markets and the slowdown in the U.S. economy, banks dramatically tightened lending standards from 2007 through 2009; however, in 15 of the 16 quarters since, more of the banks surveyed by the Federal Reserve have slightly loosened credit standards than tightened them. Demand continues to be volatile. The most recent survey, which was completed in early October, indicated a net 1% of the banks surveyed said demand picked up in the quarter, which compares with 15% in the prior quarter. In our opinion, lending standards were a little lax in 2006 and most of 2007, and tighter credit standards were necessary. We believe economic growth is dependent on access to capital; thus, we are encouraged by the slight loosening of standards and improved demand.
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
4Q91
4Q92
4Q93
4Q94
49Q
5
4Q96
4Q97
4Q98
4Q99
4Q00
4Q01
4Q02
4Q03
4Q04
4Q05
4Q06
4Q07
4Q08
4Q09
4Q10
4Q11
Exhibit 76Bank Opinion Survey: 4Q91-4Q13
Tightening Credit StandardsDemand for C&I Loans
Correlation: (0.69)R squared: 0.48
Sources: Federal Reserve and William Blair & Company, L.L.C.
52 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The NFIB Small Business Optimism Index has seen moderate, albeit volatile, improvement since the beginning of 2009 but remains below pre-downturn levels. We believe small busi-nesses provide good insight into the economic environment, due to their breadth and sheer number.
80
85
90
95
100
105
110
Jan-
02
Jun-
02
Nov
-02
Apr-0
3
Sep-
03
Feb-
04
Jul-0
4
Dec
-04
May
-05
Oct
-05
Mar
-06
Aug-
06
Jan-
07
Jun-
07
Nov
-07
Apr-0
8
Sep-
08
Feb-
09
Jul-0
9
Dec
-09
May
-10
Oct
-10
Mar
-11
Aug-
11
Jan-
12
Jun-
12
Nov
-12
Apr-1
3
Sep-
13
Exhibit 77NFIB Small Business Optimism Index
Sources: NFIB and William Blair & Company, L.L.C.
Average: 95.6
Over $1 trillion of capital that has been raised by private equity over the last eight years has yet to be put to work, including $400 billion for buyouts. We believe specialty lenders should bene it from this overhang, as many times private equity relies on other lenders to ill out the capital structure of their investments.
$173
$212
$128
$172
$79$94
$59
$86 $77$66
$84$68 $77
$95
$62
$92$82
$94$83
$114
$83
$141
$87
$0
$50
$100
$150
$200
$250
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
Exhibit 78Global Private Equity Fundraising
($ in billions)
1 2 3 4 1 2 3 4 1 2 3 4 1
Sources: Preqin and William Blair & Company, L.L.C.
53 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
$798
$1,001$1,067 $1,061
$988 $1,006$943
$1,074
$0
$200
$400
$600
$800
$1,000
$1,200
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
Exhibit 79Private-Equity Dry Powder
($ in billions)
Sources: Preqin and William Blair & Company, L.L.C.
$0
$200
$400
$600
$800
$1,000
$1,200
2006 2007 2008 2009 2010 2011 2012 2013
Exhibit 80Private-Equity Dry Powder by Fund Type
($ in billions)
Buyout
Distressed PrivateEquityGrowth
Mezzanine
Real Estate
Venture Capital
Other
Sources: Preqin and William Blair & Company, L.L.C.
According to data from Standard & Poor’s, there will be more than $170 billion of middle-market debt maturities over the next six years, most of which will need to be re inanced. Because of tight lending standards, increased bank regulations on risk asset holdings, and bank failures, we believe specialty lenders should experience increased investment opportunities.
$3
$11
$23
$50
$28
$45
$13
$1$0
$10
$20
$30
$40
$50
$60
2012 2013 2014 2015 2016 2017 2018 2019
Exhibit 81Maturities of Middle-Market Loans
(dollars in billions)
Sources: S&P Levered Commentary Data and William Blair & Company, L.L.C.
54 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
LBO purchase multiples are down from their prerecession highs. Middle-market purchase multiples have been increasing over the past several years but still compare favorably to the average LBO multiple of the entire market.
6.3x 6.1x 6.5x7.1x 7.4x
8.2x 8.6x9.8x 9.5x
7.9x8.5x
9.1x 8.9x 8.5x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
E
Exhibit 82LBO Purchase Multiples
Sources: Standard & Poor's and William Blair & Company, L.L.C.
7.8x 7.6x8.2x
7.2x
5.8x
7.2x 7.5x7.2x
7.7x 8.0x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
2005 2006 2007 2008 2009 2010 2011 2012 1Q13 2Q13
Exhibit 83Middle-Market Average EV-to-EBITDA Transaction Multiples
Note: Transactions between $10M-$250M and <15x; excludes technology, media, and telecomSources: Quarton Partners and William Blair & Company, L.L.C.
55 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Business investment spending was 12.2% of GDP during third quarter 2013, just above the long-term average of 11.9%. Much of the growth since the downturn can be attributed to investment in equipment. Business investment as a percentage of GDP troughed at 10.9% in irst quarter 2010, the lowest contribution since 1963.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
194
7-I
194
9-III
195
2-I
195
4-III
195
7-I
195
9-III
196
2-I
196
4-III
196
7-I
196
9-III
197
2-I
197
4-III
197
7-I
197
9-III
198
2-I
198
4-III
198
7-I
198
9-III
199
2-I
199
4-III
199
7-I
199
9-III
200
2-I
200
4-III
200
7-I
200
9-III
201
2-I
Exhibit 84Business Investment as a Percentage of GDP
Nonresidential Structures
Equipment Intellectual property products
Sources: Bureau of Economic Analysis and William Blair & Company, L.L.C.
Equipment leasing and inance data trends have exhibited generally stable trends over the past several months. Although volatile by month, new business volume growth has decelerated, primarily due to economic and political uncertainty as well as tough comps, in our opinion. Although up signi icantly from its recession low, new business volume is generally in line with pre-downturn levels. Approval rates have declined slightly over the past several months, likely due to higher de-mand, as credit quality remains near best-ever levels. Delinquencies have increased slightly off the record low while charge-offs remain at record lows.
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
$0
$2
$4
$6
$8
$10
$12
$14
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Year-Over-Year C
hange
New
Bus
ines
s V
olum
e (B
illio
ns)
Exhibit 85Equipment Leasing and Finance Industry New Business Volume
New Business Volume Year-Over-Year Change
Sources: ELFA and William Blair & Company, L.L.C.
56 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
55%
60%
65%
70%
75%
80%
85%
90%
95%
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Year-Over-Year C
hange
App
rove
d R
atio
Exhibit 86Equipment Leasing and Finance Industry Credit Approvals
as a Percentage of All Decisions
Credit Approvals as a % of All Decisions Year-Over-Year Change
Sources: ELFA and William Blair & Company, L.L.C.
-100%
-50%
0%
50%
100%
150%
200%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Year-Over-Year C
hange
Cha
rge-
offs
Exhibit 87Equipment Leasing and Finance Industry Charge-offs
as Percentage of Net Receivables
Charge offs as a % of Net Receivables Year-Over-Year Change
Sources: ELFA and William Blair & Company, L.L.C.
0%
1%
2%
3%
4%
5%
6%
Jan-
05
May
-05
Sep-
05
Jan-
06
May
-06
Sep-
06
Jan-
07
May
-07
Sep-
07
Jan-
08
May
-08
Sep-
08
Jan-
09
May
-09
Sep-
09
Jan-
10
May
-10
Sep-
10
Jan-
11
May
-11
Sep-
11
Jan-
12
May
-12
Sep-
12
Jan-
13
May
-13
Sep-
13
Exhibit 88Equipment Leasing and Finance Industry Delinquencies
as Percentage of ReceivablesTotal > 30 days31-60 days61-90 daysOver 90 days
Sources: ELFA and William Blair & Company, L.L.C.
57 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The national average price per gallon of gasoline was down 7.9% from the prior quarter and 5.6% year-over-year, to $3.29, in the fourth quarter. As of December 30, the price of a gallon of gasoline was $3.33. Lower gas prices increase consumers’ discretionary spending abilities, which should help bolster the economy.
-60%
-40%
-20%
0%
20%
40%
60%
80%
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
1/3/
055/
3/05
9/3/
051/
3/06
5/3/
069/
3/06
1/3/
075/
3/07
9/3/
071/
3/08
5/3/
089/
3/08
1/3/
095/
3/09
9/3/
091/
3/10
5/3/
109/
3/10
1/3/
115/
3/11
9/3/
111/
3/12
5/3/
129/
3/12
1/3/
135/
3/13
9/3/
131/
3/14
$ P
er G
allo
nExhibit 89
Weekly U.S. Retail Gasoline Prices
Gasoline Price Year-Over-Year Change
Sources: Energy Information Administration, the U.S. Department of Energy, and William Blair & Company, L.L.C.
58 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Mortgage/Housing TrendsMortgage originations are forecast to continue to decline in 2014 and 2015 as a result of the waning re inance boom that coincided with record-low mortgage rates. Mortgage rates are now more than 100 basis points above the all-time low set at the end of 2012. On the heels of about 16% growth in 2012 and 2013, we expect purchase originations to grow about 13% in 2014 and 11% in 2015, driven by still relatively low mortgage rates, a better economic environment and outlook, and stable to rising home prices. We forecast the decline in re inance activity to more than offset the growth in purchase originations. Following a roughly 24% decrease in re inance originations in 2013, we forecast a 55% decline in 2014 and a 35% decline in 2015. We forecast mortgage debt outstanding to exhibit slight growth in 2014 due to rising home prices.
1,048
2,030
2,483
3,812
2,7733,027
2,726
2,306
1,509
1,971
1,5931,477
2,0951,826
1,301 1,210
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E2014E2015E
(Bill
ions
)
Exhibit 90Annual Originations With Purchase and Refinance Breakout
Refinance Purchase
Sources: Bloomberg, Mortgage Bankers Association, Fannie Mae, Freddie Mac, and William Blair & Company, L.L.C.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E2014E
$ (B
illion
s)
Exhibit 91Mortgage Debt Outstanding
Sources: Fannie Mae and William Blair & Company, L.L.C.
59 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0%
10%
20%
30%
40%
50%
60%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E2014E
Exhibit 92Mortgage Originations/Debt Outstanding Ratio
Sources: Bloomberg, Mortgage Bankers Association, Fannie Mae, and William Blair & Company, L.L.C.
Credit trends at the government-sponsored entities continue to slowly moderate from their highs of early 2010 but are still about 200 basis points above pre-downturn levels.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Dec
-03
Mar
-04
Jun-
04Se
p-04
Dec
-04
Mar
-05
Jun-
05Se
p-05
Dec
-05
Mar
-06
Jun-
06Se
p-06
Dec
-06
Mar
-07
Jun-
07Se
p-07
Dec
-07
Mar
-08
Jun-
08Se
p-08
Dec
-08
Mar
-09
Jun-
09Se
p-09
Dec
-09
Mar
-10
Jun-
10Se
p-10
Dec
-10
Mar
-11
Jun-
11Se
p-11
Dec
-11
Mar
-12
Jun-
12Se
p-12
Dec
-12
Mar
-13
Jun-
13Se
p-13
Exhibit 93Fannie Mae and Freddie Mac Total Single-Family Delinquencies
90-Plus-Days Delinquent
Fannie MaeFreddie Mac
Note: FRE excludes mortgage loans underlying structured transactionsSources: Fannie Mae and Freddie Mac Monthly Data and William Blair & Company, L.L.C.
60 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The National Association of Realtors’ home affordability index has declined sharply from the record highs in early 2012, partly due to investor (rather than individual homeowner) de-mand but also due to the relatively low-mortgage-rate environment, depressed home values, and an improved economic environment. The index remains above pre-housing-bubble levels.
90
100
110
120
130
140
150
160
170
180
190
200
210
220
Feb-
01
Aug-
01
Feb-
02
Aug-
02
Feb-
03
Aug-
03
Feb-
04
Aug-
04
Feb-
05
Aug-
05
Feb-
06
Aug-
06
Feb-
07
Aug-
07
Feb-
08
Aug-
08
Feb-
09
Aug-
09
Feb-
10
Aug-
10
Feb-
11
Aug-
11
Feb-
12
Aug-
12
Feb-
13
Aug-
13
Exhibit 94Housing Affordability Index
Sources: National Association of Realtors and William Blair & Company, L.L.C.
Total home sales have bounced off the bottom but are still below pre-downturn levels. Total home sales were lat year-over-year at 5.36 million in November on a seasonally adjusted basis.
1,0001,5002,0002,5003,0003,5004,0004,5005,0005,5006,0006,5007,0007,5008,0008,5009,000
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Mar
-68
Mar
-70
Mar
-72
Mar
-74
Mar
-76
Mar
-78
Mar
-80
Mar
-82
Mar
-84
Mar
-86
Mar
-88
Mar
-90
Mar
-92
Mar
-94
Mar
-96
Mar
-98
Mar
-00
Mar
-02
Mar
-04
Mar
-06
Mar
-08
Mar
-10
Mar
-12
Num
ber o
f Hom
es in
Tho
usan
ds
Year
-Ove
r-Ye
ar G
row
th
Exhibit 95Total (New- and Existing-) Home Sales (SA) and Year-Over-Year Growth
Year-Over-YearTotal Home Sales
Sources: National Association of Realtors, U.S. Census Bureau, U.S. Department of Housing & Urban Development, and William Blair & Company, L.L.C.
61 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Total home sales are running slightly below trend. Exhibit 96 shows actual total home sales versus expected total home sales (based on the historical average of home sales per number of households). Dating to 1968, the seasonally adjusted home sales per number of households per-centage has averaged 4.73%. We then used this 4.73% historical average to construct a trend line of expected sales for each month since 1968.
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Mar
-68
Jun-
69S
ep-7
0D
ec-7
1M
ar-7
3Ju
n-74
Sep
-75
Dec
-76
Mar
-78
Jun-
79S
ep-8
0D
ec-8
1M
ar-8
3Ju
n-84
Sep
-85
Dec
-86
Mar
-88
Jun-
89S
ep-9
0D
ec-9
1M
ar-9
3Ju
n-94
Sep
-95
Dec
-96
Mar
-98
Jun-
99S
ep-0
0D
ec-0
1M
ar-0
3Ju
n-04
Sep
-05
Dec
-06
Mar
-08
Jun-
09S
ep-1
0D
ec-1
1M
ar-1
3
Num
ber o
f Hom
e S
ales
Total Homes Sales
Trend Line Based on Historical Average of Home Sales Per Household
Exhibit 96Total (New and Existing) Home Sales Versus Trend Line of Home Sales
Sources: National Association of Realtors, U.S. Census Bureau, U.S. Department of Housing & Urban Development, and William Blair & Company, L.L.C.
62 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Existing-home sales were down 1.2% year-over-year, to a seasonally adjusted 4.90 million in November. On a month-over-month basis, existing-home sales were down 4.3% in November.
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
8,000
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Mar
-68
Mar
-70
Mar
-72
Mar
-74
Mar
-76
Mar
-78
Mar
-80
Mar
-82
Mar
-84
Mar
-86
Mar
-88
Mar
-90
Mar
-92
Mar
-94
Mar
-96
Mar
-98
Mar
-00
Mar
-02
Mar
-04
Mar
-06
Mar
-08
Mar
-10
Mar
-12
Num
ber o
f Hom
es in
Tho
usan
ds
Year
-Ove
r-Ye
ar G
row
th
Exhibit 97Existing-Home Sales (SA) and Year-Over-Year Growth
Year-Over-YearNumber of Existing Homes Sold
Sources: National Association of Realtors, U.S. Census Bureau, U.S. Department of Housing & Urban Development, and William Blair & Company, L.L.C.
Existing-home inventory, seasonally adjusted, totaled 2.09 million units, or a 5.1-month sup-ply, in November, which is slightly below the pre-housing-bubble levels.
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
Mar
-00
Sep-
00M
ar-0
1Se
p-01
Mar
-02
Sep-
02M
ar-0
3Se
p-03
Mar
-04
Sep-
04M
ar-0
5Se
p-05
Mar
-06
Sep-
06M
ar-0
7Se
p-07
Mar
-08
Sep-
08M
ar-0
9Se
p-09
Mar
-10
Sep-
10M
ar-1
1Se
p-11
Mar
-12
Sep-
12M
ar-1
3Se
p-13
Uni
ts
Exhibit 98Inventory of Unsold Existing Homes
Sources: National Association of Realtors and Bloomberg, seasonally adjusted
63 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0
10.0 11.0 12.0 13.0
Mar
-00
Sep-
00M
ar-0
1Se
p-01
Mar
-02
Sep-
02M
ar-0
3Se
p-03
Mar
-04
Sep-
04M
ar-0
5Se
p-05
Mar
-06
Sep-
06M
ar-0
7Se
p-07
Mar
-08
Sep-
08M
ar-0
9Se
p-09
Mar
-10
Sep-
10M
ar-1
1Se
p-11
Mar
-12
Sep-
12M
ar-1
3Se
p-13
Mon
ths
Exhibit 99Existing-Home Months' Supply
Sources: National Association of Realtors and Bloomberg, seasonally adjusted
The median existing-home price grew 9% year-over-year but was down 1% from the prior month in November, to $196,200.
$130,000
$140,000
$150,000
$160,000
$170,000
$180,000
$190,000
$200,000
$210,000
$220,000
$230,000
$240,000
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Mar
-00
Sep-
00M
ar-0
1Se
p-01
Mar
-02
Sep-
02M
ar-0
3Se
p-03
Mar
-04
Sep-
04M
ar-0
5Se
p-05
Mar
-06
Sep-
06M
ar-0
7Se
p-07
Mar
-08
Sep-
08M
ar-0
9Se
p-09
Mar
-10
Sep-
10M
ar-1
1Se
p-11
Mar
-12
Sep-
12M
ar-1
3Se
p-13
Exhibit 100Median Monthly Existing-Home Price
Year-Over-Year Growth Median Price
Sources: National Association of Realtors and William Blair & Company, L.L.C.
64 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
New-home sales totaled a seasonally adjusted 464,000 in November, down 2% from the prior month but up 17% year-over-year.
2003004005006007008009001,0001,1001,2001,3001,4001,500
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
Mar
-68
Mar
-70
Mar
-72
Mar
-74
Mar
-76
Mar
-78
Mar
-80
Mar
-82
Mar
-84
Mar
-86
Mar
-88
Mar
-90
Mar
-92
Mar
-94
Mar
-96
Mar
-98
Mar
-00
Mar
-02
Mar
-04
Mar
-06
Mar
-08
Mar
-10
Mar
-12
Num
ber o
f Hom
es in
Tho
usan
ds
Year
-Ove
r-Ye
ar G
row
th
Exhibit 101New-Home Sales (SA) and Year-Over-Year Growth
Year-Over-YearNumber of New Homes Sold
Sources: National Association of Realtors, U.S. Census Bureau, U.S. Department of Housing & Urban Development, and William Blair & Company, L.L.C.
New-home inventory stood at 167,000 in November, representing a 4.3-month supply.
050,000
100,000150,000200,000250,000300,000350,000400,000450,000500,000550,000600,000650,000
Mar
-00
Sep-
00M
ar-0
1Se
p-01
Mar
-02
Sep-
02M
ar-0
3Se
p-03
Mar
-04
Sep-
04M
ar-0
5Se
p-05
Mar
-06
Sep-
06M
ar-0
7Se
p-07
Mar
-08
Sep-
08M
ar-0
9Se
p-09
Mar
-10
Sep-
10M
ar-1
1Se
p-11
Mar
-12
Sep-
12M
ar-1
3Se
p-13
Uni
ts
Exhibit 102Inventory of Unsold New Homes
Sources: U.S. Census Bureau, U.S. Department of Housing & Urban Development, and William Blair & Company, L.L.C.
65 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0123456789
1011121314
Mar
-00
Sep-
00
Mar
-01
Sep-
01
Mar
-02
Sep-
02
Mar
-03
Sep-
03
Mar
-04
Sep-
04
Mar
-05
Sep-
05
Mar
-06
Sep-
06
Mar
-07
Sep-
07
Mar
-08
Sep-
08
Mar
-09
Sep-
09
Mar
-10
Sep-
10
Mar
-11
Sep-
11
Mar
-12
Sep-
12
Mar
-13
Sep-
13
Mon
ths
Exhibit 103New-Home Months' Supply
Sources: U.S. Census Bureau, U.S. Department of Housing & Urban Development, and William Blair & Company, L.L.C.
The median new-home price was up 17% year-over-year in November, to $270,900.
$150,000$160,000$170,000$180,000$190,000$200,000$210,000$220,000$230,000$240,000$250,000$260,000$270,000$280,000$290,000
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Mar
-00
Sep-
00M
ar-0
1Se
p-01
Mar
-02
Sep-
02M
ar-0
3Se
p-03
Mar
-04
Sep-
04M
ar-0
5Se
p-05
Mar
-06
Sep-
06M
ar-0
7Se
p-07
Mar
-08
Sep-
08M
ar-0
9Se
p-09
Mar
-10
Sep-
10M
ar-1
1Se
p-11
Mar
-12
Sep-
12M
ar-1
3Se
p-13
Exhibit 104Median Monthly New-Home Price
Year-Over-Year Growth
Sources: U.S. Department of Commerce, National Association of Home Builders, and William Blair & Company, L.L.C.
66 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Single-family housing permits were at a 641,000 annual rate in November, up 3% from the previous month and up 12% year-over-year.
200300400500600700800900
1,0001,1001,2001,3001,4001,5001,6001,7001,8001,900
Feb-
60Au
g-61
Feb-
63Au
g-64
Feb-
66Au
g-67
Feb-
69Au
g-70
Feb-
72Au
g-73
Feb-
75Au
g-76
Feb-
78Au
g-79
Feb-
81Au
g-82
Feb-
84Au
g-85
Feb-
87Au
g-88
Feb-
90Au
g-91
Feb-
93Au
g-94
Feb-
96Au
g-97
Feb-
99Au
g-00
Feb-
02Au
g-03
Feb-
05Au
g-06
Feb-
08Au
g-09
Feb-
11
Sin
gle-
Fam
ily H
ousi
ng P
erm
its
Exhibit 105Single-Family Housing Permits
Seasonally Adjusted Annualized Rate
Sources: U.S. Census Bureau, U.S. Department of Housing and Urban Development, and William Blair & Company, L.L.C.
Single-family housing starts were at a 727,000 rate in November, up 21% over the previous month and 26% year-over-year.
200300400500600700800900
1,0001,1001,2001,3001,4001,5001,6001,7001,8001,9002,000
Feb-
60Au
g-61
Feb-
63Au
g-64
Feb-
66Au
g-67
Feb-
69Au
g-70
Feb-
72Au
g-73
Feb-
75Au
g-76
Feb-
78Au
g-79
Feb-
81Au
g-82
Feb-
84Au
g-85
Feb-
87Au
g-88
Feb-
90Au
g-91
Feb-
93Au
g-94
Feb-
96Au
g-97
Feb-
99Au
g-00
Feb-
02Au
g-03
Feb-
05Au
g-06
Feb-
08Au
g-09
Feb-
11Au
g-12
Sin
gle-
Fam
ily H
ousi
ng S
tarts
Exhibit 106Single-Family Housing Starts
Seasonally Adjusted Annualized Rate
Sources: U.S. Census Bureau, U.S. Department of Housing and Urban Development, and William Blair & Company, L.L.C.
67 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Total housing permits (single and multifamily) were at a seasonally adjusted annual rate of 1,017 million in November, down 2% over the prior month but up 9% year-over-year.
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
Feb-
60Au
g-61
Feb-
63Au
g-64
Feb-
66Au
g-67
Feb-
69Au
g-70
Feb-
72Au
g-73
Feb-
75Au
g-76
Feb-
78Au
g-79
Feb-
81Au
g-82
Feb-
84Au
g-85
Feb-
87Au
g-88
Feb-
90Au
g-91
Feb-
93Au
g-94
Feb-
96Au
g-97
Feb-
99Au
g-00
Feb-
02Au
g-03
Feb-
05Au
g-06
Feb-
08Au
g-09
Feb-
11Au
g-12
Tota
l Hou
sing
Per
mits
Exhibit 107Total Housing Permits
Seasonally Adjusted Annualized Rate
Sources: U.S. Census Bureau, U.S. Department of Housing and Urban Development, and William Blair & Company, L.L.C.
Total housing starts were at a seasonally adjusted annual rate of 1,091 million in November, up 23% from the prior month and 30% year-over-year.
300500700900
1,1001,3001,5001,7001,9002,1002,3002,500
Feb-
60Au
g-61
Feb-
63Au
g-64
Feb-
66Au
g-67
Feb-
69Au
g-70
Feb-
72Au
g-73
Feb-
75Au
g-76
Feb-
78Au
g-79
Feb-
81Au
g-82
Feb-
84Au
g-85
Feb-
87Au
g-88
Feb-
90Au
g-91
Feb-
93Au
g-94
Feb-
96Au
g-97
Feb-
99Au
g-00
Feb-
02Au
g-03
Feb-
05Au
g-06
Feb-
08Au
g-09
Feb-
11
Tota
l Hou
sing
Sta
rts
Exhibit 108Total Housing Starts
Seasonally Adjusted Annualized Rate
Sources: U.S. Census Bureau, U.S. Department of Housing and Urban Development, and William Blair & Company, L.L.C.
68 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Homebuilder con idence is on the rebound but remains slightly below pre-downturn levels. The NAHB/Wells Fargo Housing Market Index, which is a survey of homebuilder con idence, im-proved 11 points (23%) from December 2012, to 58, in December 2013; however, it remains well below pre-downturn levels.
0
10
20
30
40
50
60
70
80
90
-100%
-50%
0%
50%
100%
150%
200%
Jan-
86Ja
n-87
Jan-
88Ja
n-89
Jan-
90Ja
n-91
Jan-
92Ja
n-93
Jan-
94Ja
n-95
Jan-
96Ja
n-97
Jan-
98Ja
n-99
Jan-
00Ja
n-01
Jan-
02Ja
n-03
Jan-
04Ja
n-05
Jan-
06Ja
n-07
Jan-
08Ja
n-09
Jan-
10Ja
n-11
Jan-
12Ja
n-13
Exhibit 109NAHB Housing Market Index Versus Year-Over-Year Growth
Year-Over-Year ChangeHousing Market Index
Sources: Builders' Economic Council Monthly Surveys, NAHB Economics Department, and William Blair &Company, L.L.C.
Residential investment as a percentage of GDP has increased off the bottom but remains below post-WWII cyclical troughs. Residential investment was 3.15% of GDP in third quarter 2013, well below the historical average (since 1929) of 4.55%.
0%
1%
2%
3%
4%
5%
6%
7%
8%
1929
1935
1941
194
7-I
194
8-III
195
0-I
195
1-III
195
3-I
195
4-III
195
6-I
195
7-III
195
9-I
196
0-III
196
2-I
196
3-III
196
5-I
196
6-III
196
8-I
196
9-III
197
1-I
197
2-III
197
4-I
197
5-III
197
7-I
197
8-III
198
0-I
198
1-III
198
3-I
198
4-III
198
6-I
198
7-III
198
9-I
199
0-III
199
2-I
199
3-III
199
5-I
199
6-III
199
8-I
199
9-III
200
1-I
200
2-III
200
4-I
200
5-III
200
7-I
200
8-III
201
0-I
2011
-III
2013
-I
Per
cent
age
of G
DP
Exhibit 110Residential Investment as Percentage of GDP
Sources: U.S. Department of Commerce, Bureau of Economic Analysis, and William Blair & Company, L.L.C.
69 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Homeowner vacancy rates are down from the peak but remain above the long-term average. The homeowner vacancy rate was 1.9% in third quarter 2013, down from an all-time high of 2.9% in 2008; it compares with the long-term average of 1.6%.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1Q65
1Q67
1Q69
1Q71
1Q73
1Q75
1Q77
1Q79
1Q81
1Q83
1Q85
1Q87
1Q89
1Q91
1Q93
1Q95
1Q97
1Q99
1Q01
1Q03
1Q05
1Q07
1Q09
1Q11
1Q13
Hom
eow
ner V
acan
cy R
ate
Exhibit 111Homeowner Vacancy Rates
Sources: U.S. Census Bureau and William Blair & Company, L.L.C.
Rental vacancy rates have quickly declined from the third quarter 2009 peak and are 90 basis points above the long-term average of 7.4%.
0%
2%
4%
6%
8%
10%
12%
4Q66
4Q68
4Q70
4Q72
4Q74
4Q76
4Q78
4Q80
4Q82
4Q84
4Q86
4Q88
4Q90
4Q92
4Q94
4Q96
4Q98
4Q00
4Q02
4Q04
4Q06
4Q08
4Q10
4Q12
Ren
tal V
acan
cy R
ate
Exhibit 112Rental Vacancy Rates
Sources: U.S. Census Bureau and William Blair & Company, L.L.C.
70 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The homeownership rate, which stood at 65.3% at the end of third quarter 2013, is up slightly from its recent low of 65.0%, and compares with levels experienced in the mid-1990s.
62%
63%
64%
65%
66%
67%
68%
69%
70%
Dec
-70
Dec
-72
Dec
-74
Dec
-76
Dec
-78
Dec
-80
Dec
-82
Dec
-84
Dec
-86
Dec
-88
Dec
-90
Dec
-92
Dec
-94
Dec
-96
Dec
-98
Dec
-00
Dec
-02
Dec
-04
Dec
-06
Dec
-08
Dec
-10
Dec
-12
Exhibit 113Homeownership Rates for the United States
Sources: U.S. Census Bureau and William Blair & Company, L.L.C.
The average national monthly mortgage payment has returned to being more than the national average rent price. The monthly mortgage payment was less than rent prices for seven consecutive quarters until interest rates jumped in mid-2013. We assume a conventional 30-year mortgage with 20% down to compare mortgage payments and rental rates as provided by the U.S. Census Bureau. For the total monthly mortgage payment, we assume 200 basis points for insurance and taxes. We do not account for the interest expense tax deductibility in our calculations.
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
1Q88
4Q88
3Q89
2Q90
1Q91
4Q91
3Q92
2Q93
1Q94
4Q94
3Q95
2Q96
1Q97
4Q97
3Q98
2Q99
1Q00
4Q00
3Q01
2Q02
1Q03
4Q03
3Q04
2Q05
1Q06
4Q06
3Q07
2Q08
1Q09
4Q09
3Q10
2Q11
1Q12
4Q12
3Q13
Exhibit 114Owning Versus Renting: Monthly Payment Comparison
Monthly Mortgage PaymentNational Rent PriceTotal Monthly (Mortgage, Insurance, Taxes) Payment
Sources: Natioanal Association of Homebuilders, Freddie Mac, National Association of Realtors, U.S. Census Bureau, and William Blair & Company, L.L.C.
Mortgage re inancing applications have dropped signi icantly since mid-2013, as the 10-year Treasury and mortgage rates jumped more than 100 basis points in response to the Federal Reserve suggesting it was going to start reducing its bond-buying program. Home purchase applica-tions have been relatively lat since October 2011 but have also trended slightly lower since mid-2013.
71 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0
100
200
300
400
500
600
700
800
900
1,000
1,100
5/8/
09
8/7/
09
11/6
/09
2/5/
10
5/7/
10
8/6/
10
11/5
/10
2/4/
11
5/6/
11
8/12
/11
11/1
1/11
2/10
/12
5/11
/12
8/10
/12
11/9
/12
2/8/
13
5/10
/13
8/9/
13
11/8
/13
Mar
ket I
ndex
Exhibit 115Weekly Mortgage Application Index
Application Index
4-Week Moving Average
Sources: Mortgage Bankers Association of America and William Blair & Company, L.L.C.
0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%5.5%
0500
1,0001,5002,0002,5003,0003,5004,0004,5005,0005,5006,0006,500
4/24
/09
7/24
/09
10/2
3/09
1/22
/10
4/23
/10
7/23
/10
10/2
2/10
1/21
/11
4/22
/11
7/29
/11
10/2
8/11
1/27
/12
4/27
/12
7/27
/12
10/2
6/12
1/25
/13
4/26
/13
7/26
/13
10/2
5/13
10-Y
ear R
ate
Ref
inan
ce In
dex
Exhibit 116Weekly Refinance Application Index and 10-Year Treasury
Weekly Refinance Application Index
10-Year Treasury Yield
Sources: Mortgage Bankers Association of America and William Blair & Company, L.L.C.
0
50
100
150
200
250
300
350
5/8/
09
8/7/
09
11/6
/09
2/5/
10
5/7/
10
8/6/
10
11/5
/10
2/4/
11
5/6/
11
8/12
/11
11/1
1/11
2/10
/12
5/11
/12
8/10
/12
11/9
/12
2/8/
13
5/10
/13
8/9/
13
11/8
/13
Pur
chas
e In
dex
Exhibit 117Weekly Purchase Application Index
Weekly Application Purchase Index
4-Week Moving Average
Sources: Federal Reserve Data and Mortgage Bankers Association of America and William Blair & Company, L.L.C.
72 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Mortgage delinquency rates continue to improve after peaking in irst quarter 2010, accord-ing to the Mortgage Bankers Association delinquency survey. Foreclosures remain more than four times greater than the long-term average.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
4Q90
4Q91
4Q92
4Q93
4Q94
4Q95
4Q96
4Q97
4Q98
4Q99
4Q00
4Q01
4Q02
4Q03
4Q04
4Q05
4Q06
4Q07
4Q08
4Q09
4Q10
4Q11
4Q12
Une
mpl
oym
ent R
ate
Fore
clos
ure
Rat
e
% of Loans in ForeclosureUnemployment Rate
Sources: Mortgage Bankers Association, Bloomberg, and William Blair & Company, L.L.C.
Exhibit 118Percentage of Loans in Foreclosure Process Versus Unemployment Rate
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
4Q90
4Q91
4Q92
4Q93
4Q94
4Q95
4Q96
4Q97
4Q98
4Q99
4Q00
4Q01
4Q02
4Q03
4Q04
4Q05
4Q06
4Q07
4Q08
4Q09
4Q10
4Q11
4Q12
Une
mpl
oym
ent R
ate
Del
inqu
ency
Rat
e
Exhibit 119Percentage of Loans Delinquent Versus Unemployment Rate
% of Loans Delinquent Unemployment Rate
Sources: Mortgage Bankers Association, Bloomberg, and William Blair & Company, L.L.C.
73 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The average 30-year ixed conforming mortgage rate spiked in mid-2013 in response to the Federal Reserve commentary on tapering its bond buying program. The 30-year- ixed conforming mortgage hit a record low of 3.3% in November 2012, which compares with 4.48% on December 27, 2013.
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
4/7/
018/
7/01
12/7
/01
4/7/
028/
7/02
12/7
/02
4/7/
038/
7/03
12/7
/03
4/7/
048/
7/04
12/7
/04
4/7/
058/
7/05
12/7
/05
4/7/
068/
7/06
12/7
/06
4/7/
078/
7/07
12/7
/07
4/7/
088/
7/08
12/7
/08
4/7/
098/
7/09
12/7
/09
4/7/
108/
7/10
12/7
/10
4/7/
118/
7/11
12/7
/11
4/7/
128/
7/12
12/7
/12
4/7/
138/
7/13
12/7
/13
Spr
ead
Exhibit 12030-Year Fixed Mortgage Rate Long-Term Trend
Sources: Freddie Mac and William Blair & Company, L.L.C.
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4/7/
008/
7/00
12/7
/00
4/7/
018/
7/01
12/7
/01
4/7/
028/
7/02
12/7
/02
4/7/
038/
7/03
12/7
/03
4/7/
048/
7/04
12/7
/04
4/7/
058/
7/05
12/7
/05
4/7/
068/
7/06
12/7
/06
4/7/
078/
7/07
12/7
/07
4/7/
088/
7/08
12/7
/08
4/7/
098/
7/09
12/7
/09
4/7/
108/
7/10
12/7
/10
4/7/
118/
7/11
12/7
/11
4/7/
128/
7/12
12/7
/12
4/7/
138/
7/13
12/7
/13
Spr
ead
Exhibit 12130-Year Fixed Mortgage Rate Spread Over 10-Year Treasury Yield
Sources: Freddie Mac and William Blair & Company, L.L.C.
74 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Payments and Remittance TrendsWe continue to believe that the payments industry remains an attractive long-term secular growth story. Roughly 85% of global payment transactions are cash and check; however, electronic pay-ments represent roughly 60% of the U.S. market (up from roughly 15% in 1990), according to the Nilson Report. We believe the level of electronic payment adoption internationally is about 20 years behind the United States.
As such, secular growth of electronic payments is expected to be 9% to 11%, on average, globally over the next several years, driven by 5% of PCE growth and secular electronic payment growth of 4%-6%. The drivers behind the secular shift from paper to plastic include convenience, security, enhanced services, and rewards for the consumer and lower cash-handling expenses for the retailer. In addition, secular tailwinds continue to be supported by increased adoption of electronic forms of payment by governments (e.g., bene it programs and tax refunds) and by growth of e-commerce.
Exhibit 122 provides a global view of the aforementioned secular trends in terms of PCE. Cards are expected to account for 43% of global PCE in 2016 (versus an estimated 33% in 2011), which equates to a 10% compounded annual growth rate, according to MasterCard. Exhibit 123 provides a snapshot of the competitive landscape of global payment networks. Collectively, Visa Inc. (exclud-ing volume from Visa Europe) and MasterCard touch roughly 24% of the $42 trillion of global PCE. Interestingly, China UnionPay overtook American Express as the third-largest issuer of credit in 2012 as it grew its credit business 57% in 2011 and 52% in 2012.
Paper$17.6
Paper$19.2 Paper
$20.7Paper$21.8 Paper
$22.0Paper$21.7
EFT$3.2
EFT$3.9 EFT
$5.2 EFT$6.3 EFT
$8.0 EFT$8.5
Cards$6.2
Cards$6.9 Cards
$11.1Cards$13.9 Cards,
$20.0Cards$22.8
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2010 2011 2015E 2016E
Shar
e of
Glo
bal P
CE
Exhibit 122Personal Consumption Expenditures (PCE), Select Years
($ in trillions)
Sources: MasterCard and William Blair & Company, L.L.C.
$27T $30T $37T $42T $50T $53T
75 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Total Total Total TotalVolume Volume Transactions Transactions
$ Billions $ Billions in Billions in Billions2011 2012 2011 2012 2011 2012
CreditVisa Brand* $2,926 $3,209 9.7% 32.2 35.2 9.5% 870 884 1.6%MasterCard $1,894 $2,120 11.9% 20.9 23.1 10.6% 686 721 5.2%China UnionPay $673 $1,022 51.8% 3.4 4.9 42.7% 285 331 16.1%American Express $814 $888 9.1% 5.5 5.9 8.5% 97 102 5.1%JCB $162 $186 14.4% 1.4 1.6 12.8% 76 79 4.3%Diners Club $29 $28 -2.5% 0.2 0.2 -3.9% 6 6 -2.9%Credit Card Total $6,499 $7,454 14.7% 63.6 71.0 11.6% 2,020 2,123 5.1%
Debit and PrepaidVisa $5,193 $5,577 7.4% 74.5 77.0 3.4% 1,469 1,608 9.4%China UnionPay $2,125 $2,756 29.7% 5.3 6.8 29.6% 2,665 3,203 20.2%MasterCard $1,267 $1,527 20.5% 19.4 23.2 19.3% 360 436 21.1%Total Debit and Prepaid $8,584 $9,859 14.9% 99.2 107.0 7.9% 4,494 5,247 16.7%
Total Credit, Debit, and Prepaid $15,083 $17,313 14.8% 162.7 178.0 9.3% 6,514 7,370 13.1%*Includes Visa Europe, which accounted for about 27% of the brand's total volume
Sources: The Nilson Report and William Blair & Company, L.L.C.
Exhibit 123Sizing Up the Global Payments Networks (General-Purpose Cards)
Year-Over-Year
Change
Year-Over-Year
Change
Number of Cards in Millions,
Number of Cards in Millions,
Year-Over-Year
Change
76 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Exhibits 124 and 125 depict the shift toward electronic forms of payment in the United States, which are directionally representative of the long-term global opportunity, in our opinion; we believe the United States is about 20 years ahead of the rest of the world. For perspective, in 2011 electronic payments represented roughly 69% of U.S. consumer payment dollar volume in the United States (up from 53% in 2006) and represented 60% of transactions (up from 47% in 2006), according to the Nilson Report.
0%10%20%30%40%50%60%70%80%90%
100%19
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Exhibit 124U.S. Paper Versus Card Payments Transaction Market Share
Paper
Electronic Card
Source: The Nilson Report, Carpinteria, CA
0%
5%
10%
15%
20%
25%
30%
35%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Exhibit 125U.S. Card Transaction Market Share
(Card Transactions: Percentage of Total Consumer Payments Transactions)
Credit Card Debit Card Prepaid Card
Source: The Nilson Report, Carpinteria, CA
Exhibit 126 outlines expected purchase transaction growth by geographic region through 2016, according to the Nilson Report. We note that Asia-Paci ic, Latin America, and Middle East/Africa are forecast to be the three fastest-growing regions and are expected to grow at a compounded annual rate of 14%-15% through 2016. Still, the United States remains the largest country, representing about 47% of global transactions in 2011; it is expected to represent 43% of transactions in 2016.
77 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Exhibit 127 provides a snapshot of market share by purchase volume by region for 2010-2011, ac-cording to the Nilson Report. With the exception of Europe (due to Visa Europe) and China (due to domestic provider China UnionPay), Visa has a dominant share of every major geographic region.
10.7
70.7
7.4
33.724.6
2.4
21.1
101.7
9.8
51.0 50.6
4.70
20
40
60
80
100
120
Latin America United States Canada Europe Asia-Pacific Middle EastAfrica
Exhibit 126Purchase Transactions, 2011-2016E
(in billions)
2011 2016E
CAGR 15% 8% 6% 9% 15% 14%
Sources: The Nilson Report and William Blair & Company, L.L.C.
2010 Share 2011 Share Y/Y Chg 2010 Share 2011 Share Y/Y ChgVisa $1,863.5 57.2% $2,040.0 56.7% 9.5% China UnionPay $1,617.6 51.3% $2,358.4 56.9% 45.8%MasterCard $812.1 24.9% $901.0 25.1% 10.9% Visa $900.4 28.6% $1,026.5 24.8% 14.0%American Express $476.3 14.6% $540.1 15.0% 13.4% MasterCard $411.5 13.1% $506.2 12.2% 23.0%Discover $106.0 3.3% $114.2 3.2% 7.7% JCB $140.4 4.5% $158.5 3.8% 12.9%Total $3,257.9 100.0% $3,595.3 100.0% 10.4% American Express $74.0 2.3% $87.5 2.1% 18.3%
Diners $9.0 0.3% $9.8 0.2% 9.0%Total $3,153.0 100.0% $4,147.0 100.0% 31.5%
2010 Share 2011 Share Y/Y Chg 2010 Share 2011 Share Y/Y ChgVisa $199.5 40.2% $214.7 40.3% 7.6% Visa $90.0 59.8% $109.2 58.4% 21.4%Interac $171.9 34.6% $181.2 34.0% 5.4% MasterCard $51.4 34.2% $67.8 36.2% 31.8%MasterCard $98.8 19.9% $108.1 20.3% 9.4% American Express $7.6 5.1% $8.6 4.6% 12.6%American Express $26.4 5.3% $29.1 5.5% 10.1% Diners $1.5 1.0% $1.5 0.8% 4.9%Total $496.7 100.0% $533.1 100.0% 7.3% Total $150.5 100.0% $187.1 100.0% 24.4%
2010 Share 2011 Share Y/Y Chg 2010 Share 2011 Share Y/Y ChgVisa Brand* $1,488.0 67.9% $1,639.8 67.4% 10.2% Visa $277.5 61.9% $346.0 61.9% 24.7%MasterCard $602.3 27.5% $683.7 28.1% 13.5% MasterCard $128.9 28.8% $164.0 29.3% 27.2%American Express $92.2 4.2% $99.8 4.1% 8.2% American Express $36.7 8.2% $43.2 7.7% 17.7%Diners $9.9 0.5% $10.6 0.4% 6.6% Diners $5.2 1.2% $5.8 1.0% 12.3%Total $2,192.5 100.0% $2,433.8 100.0% 11.0% Total $448.3 100.0% $559.1 100.0% 24.7%
*Includes Visa Europe and Visa Inc.Sources: The Nilson Report and William Blair & Company, L.L.C.
Europe Purchase Volume Latin America Purchase Volume
Exhibit 127General-Purpose Cards Market Share by Region
($ in billions)U.S. Purchase Volume Asia-Pacific Purchase Volume
Canada Purchase Volume Middle East/Africa Purchase Volume
78 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Exhibit 128 depicts traditional point-of-sale global terminal growth, which has grown at a 12% com-pounded annual rate since 1999, according to the Nilson Report. Global growth has been driven by 22% compounded annual growth in Asia, 19% growth in Middle East/Africa, 17% growth in Latin America, 9% growth in Europe, 2% growth in the United States, and 1% growth in Canada. Due to limited infrastructure, in 2012, 41% of terminal shipments went to Asia, 22% went to Europe, and 18% went to Latin America.
In addition to traditional POS terminals, we believe technology (e.g., mobile devices, mobile point-of-sale terminals, and e-commerce) accelerates the secular shift toward electronic payments. As outlined in exhibit 129, smartphones are expected to reach 1.7 billion units by 2017, representing a 31% CAGR since 2008, according to IDC. Visa estimates that the number of mobile payment ac-ceptance points could approach 38 million by 2018 (versus 9 million in 2013).
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
1999 2005 2006 2007 2008 2009 2010 2011 2012
Exhibit 128Point-of-Sale Terminal Shipments
Sources: Nilson Report and William Blair & Company, L.L.C.
0200400600800
1,0001,2001,4001,6001,8002,000
Exhibit 129Global Smartphone Shipments
(in millions)
Sources: IDC and William Blair & Company, L.L.C.
79 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
E-commerce remains a key driver of the secular tailwinds toward electronic forms of payment, in our view. In the United States, e-commerce sales have increased at a 19% compounded annual rate since 2000 yet represent less than 6% of retail sales, according to the U.S. Census Bureau. This rate of growth compares with overall PCE growth of 4% and retail sales growth of 3%. More recently, MasterCard Advisors estimated that holiday retail sales (November 1 through December 24) rose 2.3% year-over-year, while online sales rose 13%. We believe e-commerce will continue to take share and will drive growth of electronic payments.
$27,388$34,093
$44,354$56,775$72,100
$90,528
$111,935$134,567
$140,158$142,604
$165,770
$192,911
$224,280
$193,378
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
$0
$50,000
$100,000
$150,000
$200,000
$250,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
9m E
nded
9/30
/13
Exhibit 130U.S. E-commerce Growth and Percentage of Total Retail Sales
($ in millions)
E-commerce Sales (L-Axis)
% of Total Retail Sales (R-Axis)
E-commerce Year-Over-Year Growth (R-Axis)
Sources: U.S. Census and William Blair & Company, L.L.C.
80 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Despite emerging technologies and electronic forms of communication, card issuers continue to use direct mail solicitations as a tool to expand their customer base. After posting 103% growth in 2010 and 44% growth in 2011, the number of card solicitations fell 42% year-over-year in 2012, to 2.35 billion. In the March 2013 quarter, solicitations fell an additional 4% year-over-year, to a 2.4 billion annualized rate. Interestingly, the number of solicitations remains 60% below the 2005 peak of 6.06 billion. For perspective, solicitations bottomed in 2009 at 1.39 billion offers, according to Bloomberg.
Not surprisingly, response rates trended modestly upward as solicitations decreased (exhibit 131). While online offers might skew traditional solicitations, we continue to believe that a rebound in solicitations should drive volume and loan growth for the networks and issuers over time.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
0
100
200
300
400
500
600
700
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13
Res
pons
e R
ate
Per
cent
age
Mai
lings
in T
hous
ands
Exhibit 131Direct Mail Solicitation Volume and Response Rate
Direct Mail Solicitation Volume Response Rate
Sources: Bloomberg and William Blair & Company, L.L.C.
0
1
2
3
4
5
6
7
8
0
10
20
30
40
50
60
70
80
90
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13
Num
ber o
f Offe
rs R
ecei
ved
Per
cent
age
of H
ouse
hold
Pen
etra
tion
Exhibit 132Household Penetration and Number of Offers Received
Household Penetration Number of Offers Received
Sources: Bloomberg and William Blair & Company, L.L.C.
81 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Exhibits 133 through 136 depict the types of offers provided by card companies. The average APR spread (APR versus 3-month LIBOR) materially expanded beginning in 2008 and has averaged 12.4 points (versus 7.9 points from 2003 until 2007). The percentage of offers with rewards has tapered, averaging 76% since 2010 (when the Durbin Amendment was passed); this compares with the 84% average in 2009-2010.
0
2
4
6
8
10
12
14
16M
ar-0
3Ju
l-03
Nov
-03
Mar
-04
Jul-0
4N
ov-0
4M
ar-0
5Ju
l-05
Nov
-05
Mar
-06
Jul-0
6N
ov-0
6M
ar-0
7Ju
l-07
Nov
-07
Mar
-08
Jul-0
8N
ov-0
8M
ar-0
9Ju
l-09
Nov
-09
Mar
-10
Jul-1
0N
ov-1
0M
ar-1
1Ju
l-11
Nov
-11
Mar
-12
Jul-1
2N
ov-1
2M
ar-1
3
Exhibit 133Mean "Go-To" APR on Credit Cards Versus 3-Month LIBOR
Avg APR 3-Month LIBOR Spread
Sources: Bloomberg and William Blair & Company, L.L.C.
0
10
20
30
40
50
60
70
80
90
100
Mar
-03
Jul-0
3N
ov-0
3M
ar-0
4Ju
l-04
Nov
-04
Mar
-05
Jul-0
5N
ov-0
5M
ar-0
6Ju
l-06
Nov
-06
Mar
-07
Jul-0
7N
ov-0
7M
ar-0
8Ju
l-08
Nov
-08
Mar
-09
Jul-0
9N
ov-0
9M
ar-1
0Ju
l-10
Nov
-10
Mar
-11
Jul-1
1N
ov-1
1M
ar-1
2Ju
l-12
Nov
-12
Mar
-13
Exhibit 134Share of Credit Offers With Rewards
Sources: Bloomberg and William Blair & Company, L.L.C.
82 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0
10
20
30
40
50
60
70
80
90
Mar
-03
Jul-0
3N
ov-0
3M
ar-0
4Ju
l-04
Nov
-04
Mar
-05
Jul-0
5N
ov-0
5M
ar-0
6Ju
l-06
Nov
-06
Mar
-07
Jul-0
7N
ov-0
7M
ar-0
8Ju
l-08
Nov
-08
Mar
-09
Jul-0
9N
ov-0
9M
ar-1
0Ju
l-10
Nov
-10
Mar
-11
Jul-1
1N
ov-1
1M
ar-1
2Ju
l-12
Nov
-12
Mar
-13
Exhibit 135Share of Credit Offers With Intro Purchase APR
Sources: Bloomberg and William Blair & Company, L.L.C.
0
10
20
30
40
50
60
70
80
90
Mar
-03
Jul-0
3N
ov-0
3M
ar-0
4Ju
l-04
Nov
-04
Mar
-05
Jul-0
5N
ov-0
5M
ar-0
6Ju
l-06
Nov
-06
Mar
-07
Jul-0
7N
ov-0
7M
ar-0
8Ju
l-08
Nov
-08
Mar
-09
Jul-0
9N
ov-0
9M
ar-1
0Ju
l-10
Nov
-10
Mar
-11
Jul-1
1N
ov-1
1M
ar-1
2Ju
l-12
Nov
-12
Mar
-13
Exhibit 136Share of Credit Offers With Balance Transfer APR
Sources: Bloomberg and William Blair & Company, L.L.C.
83 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
We believe exhibit 137 might partly explain Visa’s outperformance in the U.S. credit card business relative to MasterCard. Despite representing 44% of the credit card volume in the United States, Visa accounted for nearly 60% of total industry solicitations in the March 2013 quarter; this com-pares with MasterCard representing 24% of credit card volume but only 15% of total solicitations. In 2012, Visa averaged 53% of total offers versus 21% for MasterCard.
0
10
20
30
40
50
60
70Ja
n-03
May
-03
Sep-
03Ja
n-04
May
-04
Sep-
04Ja
n-05
May
-05
Sep-
05Ja
n-06
May
-06
Sep-
06Ja
n-07
May
-07
Sep-
07Ja
n-08
May
-08
Sep-
08Ja
n-09
May
-09
Sep-
09Ja
n-10
May
-10
Sep-
10Ja
n-11
May
-11
Sep-
11Ja
n-12
May
-12
Sep-
12Ja
n-13
Exhibit 137Market Share of Offers
Share of Offers for Visa Share of Offers for MasterCardShare of Offers for American Express Share of Offers for Discover
Sources: Bloomberg and William Blair & Company, L.L.C.
84 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Card lines have remained relatively stable in recent years but remain 30% below the recent 2008 peak. Credit lines have remained stagnant at about $3.8 trillion since the end of 2010, accord-ing to Bloomberg. Not surprisingly, as credit lines were reduced, credit line utilization rates spiked in 2008. Utilization rates have been relatively consistent in recent years at about 18% (versus the long-term average of 16.7%); for perspective, utilization bottomed at 14.3% in 2007.
$0
$1
$2
$3
$4
$5
$6Ju
n-01
Nov
-01
Apr-0
2
Sep-
02
Feb-
03
Jul-0
3
Dec
-03
May
-04
Oct
-04
Mar
-05
Aug-
05
Jan-
06
Jun-
06
Nov
-06
Apr-0
7
Sep-
07
Feb-
08
Jul-0
8
Dec
-08
May
-09
Oct
-09
Mar
-10
Aug-
10
Jan-
11
Jun-
11
Nov
-11
Apr-1
2
Sep-
12
Feb-
13
Exhibit 138Credit Card Loans Versus Lines
(dollars in trillions)
FDIC Industry Credit Card Loans FDIC Industry Credit Card Lines
Sources: Bloomberg and William Blair & Company, L.L.C.
1011121314151617181920
Jun-
01N
ov-0
1Ap
r-02
Sep-
02Fe
b-03
Jul-0
3D
ec-0
3M
ay-0
4O
ct-0
4M
ar-0
5Au
g-05
Jan-
06Ju
n-06
Nov
-06
Apr-0
7Se
p-07
Feb-
08Ju
l-08
Dec
-08
May
-09
Oct
-09
Mar
-10
Aug-
10Ja
n-11
Jun-
11N
ov-1
1Ap
r-12
Sep-
12Fe
b-13
Exhibit 139Credit Card Line Utilization Rate
Sources: Bloomberg and William Blair & Company, L.L.C.
85 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
More recent consumer spending trends remain solid, in our view. Exhibit 140 depicts the monthly transaction growth at First Data, which is one of the world’s largest payment processors and merchant acquirers. According to the First Data SpendTrend report, transaction growth on credit cards averaged 7.2% on a year-to-date basis through October 2013, versus 5.7% over the same period in 2012. We attribute the improving growth to the improving labor market, improv-ing consumer balance sheets, and general market stability. Interesting transaction growth for debit cards has moderated, which we largely attribute to the anniversary of the Durbin Amendment (made effective April 2012). Signature debit transaction growth averaged 4.3% year-to-date through October 2013 (versus 6.0% for the comparable period in 2012), while PIN debit growth averaged 5.9% (versus 8.9%).
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Sep-
10
Nov
-10
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep-
11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep-
12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep-
13
Figure 140First Data SpendTrend Year-Over-Year Transaction Growth
Credit Signature Debt PIN Debit Total Card
Sources: First Data and William Blair & Company, L.L.C.
86 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Total worldwide international revenue passenger miles, a measure of air traf ic, remain solid. We believe international air travel trends serve as a useful gauge for cross-border card spending trends. Global traf ic has increased roughly 5% calendar year to date through October 2013 and remains in line with the historical average, since 2003, according to the International Air Traf ic As-sociation. On a year-to-date basis, the fastest-growing regions are Latin America (8.6% growth) and Africa (7.4% growth), while North America is the slowest-growing region at 2.5% year-over-year.
The World Tourism Organization expects global tourism arrivals to grow about 5% in 2013. For perspective, in 2012 the number of international tourists rose 4% year-over-year, to 1,035 million (versus 5% in 2011), and total international tourist receipts rose 4%, to an estimated $1.075 tril-lion (versus 11% growth in 2011).
Visa and MasterCard report cross-border revenues, which represent a small portion of transac-tions but about 25% of gross revenues, and are largely driven by international travel. In addition, American Express generates 10% of revenues from airline volume.
-25
-15
-5
5
15
25
Feb-
05
Jun-
05
Oct
-05
Feb-
06
Jun-
06
Oct
-06
Feb-
07
Jun-
07
Oct
-07
Feb-
08
Jun-
08
Oct
-08
Feb-
09
Jun-
09
Oct
-09
Feb-
10
Jun-
10
Oct
-10
Feb-
11
Jun-
11
Oct
-11
Feb-
12
Jun-
12
Oct
-12
Feb-
13
Jun-
13
Oct
-13
%
Worldwide
Sources: International Air Traffic Association, Bloomberg, William Blair & Company, L.L.C.
Exhibit 141Global Air Travel Year-Over-Year Change
2005 to Present
-25
-15
-5
5
15
25
Feb-
05Ju
n-05
Oct
-05
Feb-
06Ju
n-06
Oct
-06
Feb-
07Ju
n-07
Oct
-07
Feb-
08Ju
n-08
Oct
-08
Feb-
09Ju
n-09
Oct
-09
Feb-
10Ju
n-10
Oct
-10
Feb-
11Ju
n-11
Oct
-11
Feb-
12Ju
n-12
Oct
-12
Feb-
13Ju
n-13
Oct
-13
%
North America Latin America
Sources: International Air Traffic Association, Bloomberg, William Blair & Company, L.L.C.
Exhibit 142Americas Air Travel Year-Over-Year Change
2005 to Present
87 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
-25
-15
-5
5
15
25
Feb-
05Ju
n-05
Oct
-05
Feb-
06Ju
n-06
Oct
-06
Feb-
07Ju
n-07
Oct
-07
Feb-
08Ju
n-08
Oct
-08
Feb-
09Ju
n-09
Oct
-09
Feb-
10Ju
n-10
Oct
-10
Feb-
11Ju
n-11
Oct
-11
Feb-
12Ju
n-12
Oct
-12
Feb-
13Ju
n-13
Oct
-13
%
Europe Asia-Pacific Africa
Sources: International Air Traffic Association, Bloomberg, and William Blair & Company, L.L.C.
Exhibit 143International Air Travel: 2005 to Present
$678$743
$857$939
$850$928
$1,030$1,0757.2%
4.3%
6.6%
2.1%
-3.4%
7.2%
4.9%
4.0%
5.0%
-4%
-2%
0%
2%
4%
6%
8%
$0
$200
$400
$600
$800
$1,000
$1,200
2005 2006 2007 2008 2009 2010 2011 2012 2013E
Exhibit 144Tourism Receipts Versus Tourism Arrivals Year-Over-Year Change
International Tourism Receipts Y/Y Change International Tourism Arrivals
Sources: UNWTO and William Blair & Company, L.L.C.
88 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
While macro uncertainties linger, we believe fundamental trends for the money transfer industry continue to improve moderately. The World Bank estimates that global remittances will reach $707 billion by 2016; this assumes 9% compounded annual growth and compares with 7% com-pounded annual growth since 2010.
As outlined in exhibit 146 the countries with the largest amount of remittance in lows are India ($63 billion), China ($62 billion), Mexico ($24 billion), the Philippines ($23 billion), and France ($16 billion). Conversely as outlined in exhibit 147, the largest countries for out lows are the United States ($52 billion), Saudi Arabia ($27 billion), Switzerland ($22 billion), and Russia ($19 billion).
2008 2009 2010 2011 2012 2013E 2014E 2015E 2016EDeveloping Countries $323 $303 $334 $374 $390 $414 $449 $491 $540 East Asia and Pacific 84 79 95 107 108 116 127 139 154 Europe and Central Asia 40 32 32 37 38 42 46 51 56 Latin America and Caribbean 63 55 56 59 60 61 67 75 84 Middle East and North Africa 36 34 41 43 48 50 52 55 58 South Asia 72 75 82 97 107 114 123 133 146 Sub-Saharan Africa 29 28 29 30 30 32 35 38 42
World $446 $418 $454 $506 $519 $549 $594 $646 $707
Year-Over-Year ChangeDeveloping Countries 16.5% -6.3% 10.2% 11.9% 4.3% 6.3% 8.6% 9.3% 9.9% East Asia and Pacific 18.8% -6.0% 20.1% 12.4% 1.0% 7.4% 9.5% 10.2% 10.5% Europe and Central Asia 17.2% -20.1% -0.9% 17.6% 1.6% 10.8% 10.3% 11.2% 11.6% Latin America and Caribbean 2.2% -12.0% 1.1% 6.1% 0.9% 2.5% 10.5% 11.1% 11.6% Middle East and North Africa 12.0% -6.5% 19.4% 6.3% 10.8% 3.6% 4.9% 5.4% 5.6% South Asia 32.6% 4.6% 9.4% 18.4% 9.7% 6.8% 7.7% 8.5% 9.4% Sub-Saharan Africa 15.7% -1.8% 4.1% 4.5% -0.4% 6.2% 8.6% 9.2% 9.5%
World 16.1% -6.3% 8.7% 11.5% 2.5% 5.8% 8.2% 8.8% 9.4%
Sources: World Bank and William Blair & Company, L.L.C.
Exhibit 145Outlook for Remittance Flows to Developing Countries
($ in billions)
89 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
$71
$60
$26$22 $22 $21 $20
$15 $15 $15$11 $11 $10 $9 $9
$0
$10
$20
$30
$40
$50
$60
$70
$80
Exhibit 146Top 15 Countries for Migrant Remittance Inflows (2013E Data)
($ in billions)
Sources: World Bank and William Blair & Company, L.L.C.
$51
$32 $29 $28
$16 $15$12 $11 $11 $11 $11 $10 $10 $8 $6
$0
$10
$20
$30
$40
$50
$60
Exhibit 147Top 15 Countries for Migrant Remittance Outflows, 2012 Data
($ in millions)
Sources: World Bank and William Blair & Company, L.L.C.
90 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
We believe consumer-directed healthcare could serve as a solution to rising healthcare costs in the United States. As outlined in exhibit 148, as a percentage of gross domestic product (GDP), health-care represents 17.7% (up from 9% in 1980) in the United States, which compares with the global average of 9.3%, according to the Organisation for Economic Co-operation and Development. The next highest is the Netherlands at 11.9%, followed by France at 11.6%; Estonia is the lowest at 5.9%.
We believe high-deductible health plans (HDHP) with savings options represent a reasonable proxy of the emerging trend toward consumer-directed healthcare. In addition to tax bene its, employers have incentives to increase participation in these programs because consumer-directed healthcare reduces the total cost of coverage by about 18% per employee (versus PPO and HMO plans), accord-ing to Mercer. Studies suggest HDHPs might in luence consumer behavior and lifestyle choices, as the end-user is more connected with healthcare costs.
These plans also help reduce the complexity that is generally associated with managed care plans and increase lexibility for employees, in our view. Despite these bene its, only about 20% of em-ployees (versus roughly 5% in 2007) in the United States are covered by such plans, according to the Kaiser Family Foundation; see exhibit 149.
Exhibit 148Total Expenditure on Healthcare as Percentage of GDP
Sources: OECD Health Data and William Blair & Company, L.L.C.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
% o
f GD
P
Scandinavia
DenmarkFinlandIcelandNorwaySweden
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
% o
f GD
P
North America
Canada
United States 0.0
2.0
4.0
6.0
8.0
10.0
12.0
% o
f GD
P
Asia-Pacific/Middle East
Israel South Korea New Zealand
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
% o
f GD
P
Western and Central Europe
Austria Belgium IrelandLuxembourg Netherlands PortugalSpain Switzerland United Kingdom
91 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
73%46%
27%10%8%7%
4%5%5%
3%3%3%
1%1%1%1%1%1%
16%21%
31%28%
29%24%
27%24%25%
21%20%21%
20%20%19%
17%16%
14%
11%26%
28%39%42%
46%52%
54%55%
61%60%57%
58%60%
58%55%56%
57%
7%14%
24%21%
23%18%17%15%15%
13%13%
12%10%
8%10%9%
9%
0%4%
5%8%8%
13%17%19%20%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
198819931996199920002001200220032004200520062007200820092010201120122013
Exhibit 149Percentage of Covered Employees Enrolled by Plan Type
Conventional HMO PPO POS HDHP / SO
Sources: Kaiser Family Foundation, HRET, KMPG, HIAA, and William Blair & Company, L.L.C.
92 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
Stock-Price Performance and ValuationStock-price performance has been relatively strong for our coverage list and the inancial technology sector. Sixteen of the 25 stocks under our research coverage outperformed the S&P 500 in 2013 with average price up 53% (versus 28% for the market). WageWorks and QIWI (IPO in May 2013) were the best performers, up 241% and 227%, respectively, while DFC Global and Monroe Capital were the worst-performing names under our coverage, falling 42% and 19%, respectively.
More broadly, the William Blair Financial Technology Index, which is composed of more than 50 stocks, rose 44% in 2013 (versus 30% growth in 2012). The William Blair Specialty Finance Index, which is composed of more than 60 stocks, rose 47% in 2013 (versus 31% in 2012).
12/31/2013Rating Price 2010 2011 2012 1Q:13 2Q:13 3Q:13 4Q13 2013
Consumer FinanceCapital One Financial COF MP 76.61$ 11.0% -0.6% 37.0% -5.1% 14.3% 9.4% 11.4% 32.2%DFC Global Corp. DLLR MP 11.45$ 21.1% -5.4% 2.5% -10.1% -17.0% -20.4% 4.2% -38.2%Encore Capital Group ECPG OP 50.26$ 34.8% -9.3% 44.0% -1.7% 10.0% 38.2% 9.8% 64.1%Portfolio Recovery Associates PRAA OP 52.84$ 67.7% -10.2% 58.3% 18.8% 21.0% 17.0% -11.8% 48.3%
Fintech - Payment Networks:Visa V OP 222.68$ -19.5% 44.3% 49.3% 12.0% 7.6% 4.6% 16.5% 46.9%MasterCard MA OP 835.46$ -12.5% 66.4% 31.8% 10.1% 6.2% 17.1% 24.2% 70.1%Discover Financial Services DFS OP 55.95$ 26.0% 29.5% 60.6% 16.3% 6.2% 6.1% 10.7% 45.1%American Express AXP OP 90.73$ 5.9% 9.9% 21.9% 17.4% 10.8% 1.0% 20.1% 57.8%WEX WXS OP 99.03$ 44.4% 18.0% 38.9% 4.2% -2.3% 14.4% 12.9% 31.4%
Fintech - Payments:Green Dot GDOT MP 25.15$ -45.0% -60.9% 37.0% 19.4% 32.0% -4.5% 106.1%Alliance Data Systems ADS OP 262.93$ 10.0% 46.2% 39.4% 11.8% 11.8% 16.8% 24.3% 81.6%Cardtronics CATM OP 43.45$ 60.0% 52.9% -12.3% 15.7% 0.5% 34.5% 17.1% 83.0%EVERTEC EVTC OP 24.66$ 9.9% 1.1% 11.0% 23.3%Qiwi QIWI OP 55.97$ 36.5% 34.7% 79.0% 229.2%
Fintech - Other:Financial Engines FNGN OP 69.48$ 12.6% 24.2% 30.6% 25.9% 30.4% 16.9% 150.5%WageWorks WAGE OP 59.44$ 97.8% 40.6% 37.6% 46.4% 17.8% 233.9%Performant PFMT OP 10.30$ 12.2% 21.6% -5.6% -6.0% -5.5% 2.0%
Money TransferWestern Union WU MP 17.25$ -1.5% -1.7% -25.5% 10.5% 13.8% 9.1% -7.6% 26.7%Moneygram MGI OP 20.78$ -5.9% -18.1% -25.1% 36.2% 25.1% -13.6% 6.1% 56.4%
Commercial FinanceMarlin Business Services MRLN OP 24.97$ 59.5% 0.4% 58.0% 15.6% -1.8% 9.6% 0.0% 24.5%CAI CAP OP 23.57$ 117.1% -21.1% 42.0% 31.3% -18.2% -1.3% 1.3% 7.4%Independence Realty Trust IRT OP 8.34$ 1.1% -1.9%
BDCsMonroe Capital MRCC OP 12.24$ 1.4% -0.4% -13.3% -5.8% -17.5%Garrison Capital GARS OP 13.88$ 0.9% 1.9% -4.2% -6.1% -7.5%Harvest Capital HCAP OP 15.02$ 0.6% -0.5% 0.0% 0.1%
S&P500 SP50 1,848$ 12.8% 0.0% 13.4% 10.0% 2.4% 4.7% 9.9% 29.6%IPO at $20.00; shares began trading on April 17, 2013 IPO at $15.00; shares began trading on October 25, 2012
IPO at $17.00; shares began trading on May 3, 2013 IPO at $15.00; shares began trading on March 27, 2013
IPO at $9.00; shares began trading on May 10, 2012 IPO at $15.00; shares began trading on May 6, 2013
IPO at $9.00; shares began trading on August 10, 2012 IPO at $8.50; shares began trading on August 13, 2013
Sources: FactSet and William Blair & Company, L.L.C.
Exhibit 150Stock Price Performance
Stock Price Performance
93 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0
50
100
150
200
250
300
350
400
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
Jan-
14
Exhibit 151William Blair Financial Technology Index Versus S&P 500
Fin TechS&P 500
Sources: FactSet and William Blair & Company, L.L.C.
Price (Indexed to 100)
0
50
100
150
200
250
300
350
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
Jan-
14
Exhibit 152William Blair Specialty Finance Index Versus S&P 500
Specialty Finance
S&P 500
Sources: FactSet and William Blair & Company, L.L.C.
Price (Indexed to 100)
94 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
The combination of strong earnings growth and multiple expansion drove stock price performance in 2013. For example, the EV-to-EBITDA multiple for the inancial technology index expanded 29% in 2013 and is up seven points, to 12 times, since valuations bottomed in November 2008. We be-lieve the relatively strong business models and secular tailwinds suggest the group could trade at a 12- to 14-times multiple over time. Exhibit 154 highlights valuation multiples for our companies under coverage.
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Exhibit 153William Blair Financial Technology Index
EV-to-NTM-EBITDA
Sources: FactSet and William Blair & Company, L.L.C.
For the remainder of this report, we examine the current and historical valuation metrics for com-panies under coverage. Valuations have expanded but appear fairly attractive compared with the historical averages.
95 Robert P. N
apoli +1 312 364 8496
William
Blair & Com
pany, L.L.C.
Price ($MM) Price/ DivRating 12/31/2013 Mkt Cap Tang BV Yield 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E 2012 2013E 2014E 2015E
Fintech - Payment Networks:Visa V OP $222.68 $144,965 38.04x 0.7% $6.65 $7.82 $9.30 $10.77 33.5x 28.5x 23.9x 20.7x 21.1x 17.2x 14.5x 12.4x 23% 18% 19% 16%MasterCard MA OP $835.46 $101,926 19.78x 0.1% $22.04 $26.21 $31.31 $37.00 37.9x 31.9x 26.7x 22.6x 23.7x 19.5x 16.1x 13.4x 18% 19% 19% 18%American Express AXP OP $90.73 $98,079 6.24x 1.0% $4.41 $4.90 $5.40 $5.97 20.6x 18.5x 16.8x 15.2x 8% 11% 10% 11%Alliance Data Systems ADS OP $262.93 $15,381 -8.52x 0.0% $10.08 $11.35 $12.46 $13.50 26.1x 23.2x 21.1x 19.5x 21.6x 19.1x 18.1x 17.5x 32% 13% 10% 8%Discover Financial Services DFS OP $55.95 $27,080 2.67x 1.3% $4.50 $4.88 $4.80 $5.06 12.4x 11.5x 11.7x 11.1x 9% 8% -2% 5%Capital One Financial COF MP $76.61 $45,284 1.75x 1.6% $6.16 $7.04 $6.60 $7.10 12.4x 10.9x 11.6x 10.8x -9% 14% -6% 8%
Fintech - Payments:WEX WEX OP $99.03 $3,870 -25.55x 0.0% $4.06 $4.54 $5.07 $5.69 24.4x 21.8x 19.5x 17.4x 14.1x 12.8x 11.2x 10.0x 12% 12% 12% 12%Green Dot GDOT MP $25.15 $1,117 3.51x 0.0% $1.42 $1.24 $1.45 $1.68 17.7x 20.3x 17.3x 15.0x 7.1x 6.9x 5.8x 4.6x -9% -13% 17% 16%Cardtronics CATM OP $43.45 $1,942 -8.10x 0.0% $1.61 $1.91 $2.23 $2.54 27.0x 22.7x 19.5x 17.1x 12.0x 10.9x 9.4x 8.4x 18% 19% 17% 14%EVERTEC EVTC OP $24.66 $2,039 -3.21x 1.6% $1.46 $1.67 $1.89 16.9x 14.8x 13.0x 15.0x 13.2x 11.5x 14% 13%QIWI QIWI OP $56.00 $2,912 154.56x 2.1% $0.75 $1.08 $1.36 $1.71 74.7x 51.9x 41.2x 32.7x 50.1x 35.4x 27.0x 21.2x 44% 26% 26%
Fintech - Other:Financial Engines FNGN OP $69.48 $3,662 11.84x 0.3% $0.50 $0.77 $0.96 $1.16 139.0x 90.2x 72.4x 59.9x 59.3x 42.4x 34.5x 28.4x 32% 54% 25% 21%WageWorks WAGE OP $59.44 $2,083 138.88x 0.0% $0.58 $0.73 $0.87 $1.02 102.5x 81.4x 68.3x 58.3x 45.0x 38.7x 33.1x 28.7x 61% 26% 19% 17%Performant Financial Corp. PFMT OP $10.30 $511 -10.22x 0.0% $0.64 $0.81 $0.72 $1.00 16.1x 12.7x 14.3x 10.3x 8.8x 6.7x 7.1x 5.2x 16% 27% -11% 39%
Money TransferWestern Union WU MP $17.25 $9,591 -3.08x 2.9% $1.69 $1.42 $1.44 $1.67 10.2x 12.1x 12.0x 10.3x 7.9x 8.4x 7.7x 6.6x 8% -16% 1% 16%Moneygram MGI OP $20.78 $1,496 -2.54x 0.0% $1.05 $1.29 $1.47 $1.67 19.8x 16.1x 14.1x 12.4x 7.4x 6.9x 6.2x 5.5x 28% 23% 14% 14%
Consumer FinanceDFC Global Corp. DLLR MP $11.45 $466 -1.04x 0.0% $2.18 $1.03 $1.25 5.3x 11.1x 9.2x 5.0x 2.0x 5.4x 12% -53% 21% 26%Encore Capital Group ECPG OP $50.26 $1,366 23.35x 0.0% $3.22 $3.65 $4.40 $5.10 15.6x 13.8x 11.4x 9.9x 12.2x 14.6x 9.6x 8.7x 36% 13% 21% 16%Portfolio Recovery Associates PRAA OP $52.84 $2,677 3.78x 0.0% $2.46 $3.41 $3.81 $4.20 21.5x 15.5x 13.9x 12.6x 12.9x 9.5x 8.1x 7.3x 26% 39% 12% 10%
Commercial FinanceMarlin Business Services MRLN OP $25.20 $316 1.97x 1.7% $0.91 $1.36 $1.73 $2.21 27.7x 18.5x 14.6x 11.4x 90% 49% 27% 28%CAI International CAP OP $23.57 $533 1.34x 0.0% $3.18 $2.81 $3.09 $3.47 7.4x 8.4x 7.6x 6.8x 9.4x 9.0x 8.7x 8.4x 25% -12% 10% 12%
BDCs/REITsMonroe Capital MRCC OP $12.20 $122 0.87x 11.1% $0.15 $1.17 $1.41 $1.42 10.4x 8.7x 8.6x 698% 21% 1%Garrison Capital GARS OP $13.88 $233 0.92x 10.1% $1.29 $1.41 $1.50 10.8x 9.8x 9.3x 63% 9% 6%Harvest Capital HCAP OP $15.02 $92 1.02x 9.3% $1.54 $1.16 $1.52 $1.66 12.9x 9.9x 9.0x -25% 31% 9%Independence Realty Trust IRT OP $8.34 $85 1.12x 7.7% $0.71 $0.74 $0.98 $1.01 11.3x 8.5x 8.3x 19.0x 32.5x 14.8x 14.4x 4% 32% 3%Sources: FactSet and William Blair & Company, L.L.C.
Exhibit 154Financial Technology, Specialty Finance Valuation Table
William Blair EPS Estimates P/E EV/EBITDA Earnings Growth
96 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 155Historical Valuation: CAI (CAP)
P/E (L-Axis) Price to Book (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Avg 7.6x
Avg 1.2x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 156Historical Valuation: Portfolio Recovery (PRAA)
P/E (L-Axis) Price to Book (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 12.4x
Average 2.1x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
12/2
6/07
3/13
/08
5/29
/08
8/13
/08
10/2
8/08
1/14
/09
4/01
/09
6/17
/09
9/01
/09
11/1
6/09
2/03
/10
4/21
/10
7/07
/10
9/21
/10
12/0
6/10
2/22
/11
5/09
/11
7/25
/11
10/0
7/11
12/2
2/11
3/12
/12
5/25
/12
8/10
/12
10/2
5/12
1/15
/13
4/03
/13
6/18
/13
9/03
/13
11/1
5/13
Exhibit 157Historical Valuation: Encore Capital Group (ECPG)
P/E (L-Axis) Price to Book (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 9.0x
Average 1.5x
97 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 158Historical Valuation: DFC Global (DLLR)
P/E (L-Axis)
EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 4.5x
Average 8.2x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
35.0x
40.0x
12/2
6/07
3/07
/08
5/16
/08
7/28
/08
10/0
6/08
12/1
5/08
2/26
/09
5/07
/09
7/17
/09
9/25
/09
12/0
4/09
2/17
/10
4/28
/10
7/08
/10
9/16
/10
11/2
4/10
2/04
/11
4/15
/11
6/27
/11
9/06
/11
11/1
4/11
1/26
/12
4/05
/12
6/15
/12
8/24
/12
11/0
6/12
1/17
/13
4/01
/13
6/10
/13
8/19
/13
10/2
8/13
Exhibit 159Historical Valuation: MoneyGram (MGI)
P/E (L-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 13.8x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 160Historical Valuation: Western Union (WU)
P/E (L-Axis)
EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Avgerage 8.2x
Avgerage12.1x
98 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
6.849871
0.0x1.0x2.0x3.0x4.0x5.0x6.0x7.0x8.0x9.0x
0.0x2.0x4.0x6.0x8.0x
10.0x12.0x14.0x16.0x18.0x
9/17
/12
10/0
2/12
10/1
7/12
11/0
5/12
11/2
0/12
12/0
6/12
12/2
1/12
1/09
/13
1/25
/13
2/11
/13
2/27
/13
3/14
/13
4/01
/13
4/16
/13
5/01
/13
5/16
/13
6/03
/13
6/18
/13
7/03
/13
7/19
/13
8/05
/13
8/20
/13
9/05
/13
9/20
/13
10/0
7/13
10/2
2/13
11/0
6/13
11/2
1/13
12/0
9/13
12/2
4/13
Exhibit 161Historical Valuation: Performant Financial (PFMT)
P/E (L-Axis)
EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 13.5x
Average 6.8x
0.0x
10.0x
20.0x
30.0x
40.0x
50.0x
60.0x
70.0x
80.0x
5/07
/10
5/26
/10
6/15
/10
7/02
/10
7/22
/10
8/10
/10
8/27
/10
9/16
/10
10/0
5/10
10/2
2/10
11/1
0/10
11/3
0/10
12/1
7/10
1/06
/11
1/26
/11
2/14
/11
3/04
/11
3/23
/11
4/11
/11
4/29
/11
5/18
/11
6/07
/11
6/24
/11
7/14
/11
8/02
/11
8/19
/11
9/08
/11
9/27
/11
10/1
4/11
11/0
2/11
Exhibit 162Historical Valuation: WageWorks (WAGE)
P/E (L-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 40.8x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
0.0x
10.0x
20.0x
30.0x
40.0x
50.0x
60.0x
70.0x
80.0x
5/07
/10
6/22
/10
8/05
/10
9/20
/10
11/0
2/10
12/1
6/10
2/01
/11
3/17
/11
5/02
/11
6/15
/11
7/29
/11
9/13
/11
10/2
6/11
12/0
9/11
1/26
/12
3/12
/12
4/25
/12
6/08
/12
7/24
/12
9/06
/12
10/1
9/12
12/0
6/12
1/23
/13
3/08
/13
4/23
/13
6/06
/13
7/22
/13
9/04
/13
10/1
7/13
12/0
2/13
Exhibit 163Historical Valuation: Financial Engines (FNGN)
P/E (L-Axis)
EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 49x
99 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
-2.0x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
35.0x
40.0x
6/11
/13
6/18
/13
6/25
/13
7/02
/13
7/10
/13
7/17
/13
7/24
/13
7/31
/13
8/07
/13
8/14
/13
8/21
/13
8/28
/13
9/05
/13
9/12
/13
9/19
/13
9/26
/13
10/0
3/13
10/1
0/13
10/1
7/13
10/2
4/13
10/3
1/13
11/0
7/13
11/1
4/13
11/2
1/13
11/2
9/13
12/0
6/13
12/1
3/13
12/2
0/13
Exhibit 164Historical Valuation: QIWI (QIWI)
P/E (L-Axis)
EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 24.7x
Average 6.8x
10.0x
10.5x
11.0x
11.5x
12.0x
12.5x
13.0x
13.5x
14.0x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
5/20
/13
5/28
/13
6/04
/13
6/11
/13
6/18
/13
6/25
/13
7/02
/13
7/10
/13
7/17
/13
7/24
/13
7/31
/13
8/07
/13
8/14
/13
8/21
/13
8/28
/13
9/05
/13
9/12
/13
9/19
/13
9/26
/13
10/0
3/13
10/1
0/13
10/1
7/13
10/2
4/13
10/3
1/13
11/0
7/13
11/1
4/13
11/2
1/13
11/2
9/13
12/0
6/13
12/1
3/13
12/2
0/13
Exhibit 165Historical Valuation: Evertec (EVTC)
P/E (L-Axis)
EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 13.7x
Average 12.2x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 166Historical Valuation: Cardtronics (CATM)
P/E (L-Axis)
EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 14.7x
100 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
0.0x5.0x
10.0x15.0x20.0x25.0x30.0x35.0x40.0x45.0x
9/20
/10
10/2
8/10
12/0
8/10
1/19
/11
3/01
/11
4/08
/11
5/19
/11
6/29
/11
8/09
/11
9/19
/11
10/2
7/11
12/0
7/11
1/19
/12
2/29
/12
4/10
/12
5/18
/12
6/28
/12
8/08
/12
9/18
/12
10/2
6/12
12/1
0/12
1/22
/13
3/04
/13
4/12
/13
5/22
/13
7/02
/13
8/12
/13
9/20
/13
10/3
0/13
12/1
0/13
Exhibit 167Historical Valuation: Green Dot (GDOT)
P/E (L-Axis)
EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 6.9x
Average 18.6x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 168Historical Valuation: WEX (WEX)
P/E (L-Axis)
EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 7.7x
Average 13.6x
0.0x
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 169Historical Valuation: Capital One Financial (COF)
P/E (L-Axis)Price to Book (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 0.7x
Average 10.3x
101 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 170Historical Valuation: Discover Financial Services (DFS)
P/E (L-Axis)
Price to Book (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 1.4x
Average11.2x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
35.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 171Historical Valuation: American Express (AXP)
P/E (L-Axis)Price to Book (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Avgerage13.9x
Average 3.0x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
0.0x5.0x
10.0x15.0x20.0x25.0x30.0x35.0x40.0x45.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 172Historical Valuation: Visa (V)
P/E (L-Axis)EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 19.6x
Average 11.1x
102 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 173Historical Valuation: Alliance Data Systems (ADS)
P/E (L-Axis)
EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 12.4x
Average 7.3x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
35.0x
12/2
6/07
3/11
/08
5/22
/08
8/05
/08
10/1
6/08
12/3
0/08
3/16
/09
5/28
/09
8/10
/09
10/2
1/09
1/05
/10
3/19
/10
6/02
/10
8/13
/10
10/2
6/10
1/07
/11
3/23
/11
6/06
/11
8/17
/11
10/2
8/11
1/12
/12
3/27
/12
6/08
/12
8/21
/12
11/0
5/12
1/18
/13
4/04
/13
6/17
/13
8/28
/13
11/0
8/13
Exhibit 174Historical Valuation: MasterCard (MA)
P/E (L-Axis)
EV to EBITDA (R-Axis)
Sources: FactSet and William Blair & Company, L.L.C.
Average 10.2x
Avgerage 18.4x
0.5
0.6
0.7
0.8
0.9
1.0
1.1
6%
7%
8%
9%
10%
11%
12%
10/2
5/12
11/2
5/12
12/2
5/12
1/25
/13
2/25
/13
3/25
/13
4/25
/13
5/25
/13
6/25
/13
7/25
/13
8/25
/13
9/25
/13
10/2
5/13
11/2
5/13
12/2
5/13
Pric
e/B
ook
Div
iden
d Yi
eld
Exhibit 175Historical Valuation: Monroe Capital (MRCC)
Dividend Yield
P/B
Sources: Company reports, FactSet, and William Blair & Company, L.L.C.
103 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
0.5
0.6
0.7
0.8
0.9
1.0
1.1
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
3/27
/13
4/10
/13
4/24
/13
5/8/
135/
22/1
36/
5/13
6/19
/13
7/3/
137/
17/1
37/
31/1
38/
14/1
38/
28/1
39/
11/1
39/
25/1
310
/9/1
310
/23/
1311
/6/1
311
/20/
1312
/4/1
312
/18/
131/
1/14
Pric
e to
Boo
k
Div
iden
d Yi
eld
Exhibit 176Historical Valuation: Garrison Capital (GARS)
Dividend Yield
P/B
Sources: Company reports, FactSet, and William Blair & Company, L.L.C.
0.5
0.6
0.7
0.8
0.9
1.0
1.1
8.0%
8.2%
8.4%
8.6%
8.8%
9.0%
9.2%
9.4%
9.6%
5/3/
13
5/17
/13
5/31
/13
6/14
/13
6/28
/13
7/12
/13
7/26
/13
8/9/
13
8/23
/13
9/6/
13
9/20
/13
10/4
/13
10/1
8/13
11/1
/13
11/1
5/13
11/2
9/13
12/1
3/13
12/2
7/13
Pric
e to
Boo
k
Div
iden
d Yi
eld
Exhibit 177Historical Valuation: Harvest Capital (HCAP)
Dividend Yield
P/B
Sources: Company reports, FactSet, and William Blair & Company, L.L.C.
6.8%
7.0%
7.2%
7.4%
7.6%
7.8%
8.0%
8.2%
8/13
/13
8/20
/13
8/27
/13
9/3/
139/
10/1
39/
17/1
39/
24/1
310
/1/1
310
/8/1
310
/15/
1310
/22/
1310
/29/
1311
/5/1
311
/12/
1311
/19/
1311
/26/
1312
/3/1
312
/10/
1312
/17/
1312
/24/
1312
/31/
131/
7/14
Div
iden
d Yi
eld
Exhibit 178Historical Valuation: Independence Realty Trust (IRT)
Sources: Company reports, FactSet, and William Blair & Company, L.L.C.
104 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
IMPORTANT DISCLOSURESAdditional information is available upon request.
This report is available in electronic form to registered users via R*Docs™ at www.rdocs.com or www.williamblair.com.
Please contact us at +1 800 621 0687 or consult williamblair.com/Research-and-Insights/Equity-Research/Coverage.aspx for all disclosures.
Robert Napoli attests that 1) all of the views expressed in this research report accurately re lect his personal views about any and all of the securities and companies covered by this report, and 2) no part of his compensation was, is, or will be related, directly or indirectly, to the speci ic recommenda-tions or views expressed by him in this report. We seek to update our research as appropriate, but various regulations may prohibit us from doing so. Other than certain periodical industry reports, the majority of reports are published at irregular intervals as deemed appropriate by the analyst.
DJIA: 16,437.05S&P 500: 1,842.37NASDAQ: 4,174.66
The prices of the common stock of other public companies mentioned in this report follow:
Exxon Mobil Corporation $100.52Mercer International Inc. $9.80RAIT Financial Trust $8.87Towers Watson & Co. (Outperform) $128.08Wal-Mart Stores, Inc. (Market Perform) $78.04Wells Fargo & Co mpany $45.94
Current Ratings Distribution (as of 12/31/13)Coverage Universe Percent Inv. Banking Relationships* PercentOutperform (Buy) 63% Outperform (Buy) 16%Market Perform (Hold) 33% Market Perform (Hold) 3%Underperform (Sell) 1% Underperform (Sell) 0%
* Percentage of companies in each rating category that are investment banking clients, de ined as companies for which William Blair has received compensation for investment banking services within the past 12 months.
The compensation of the research analyst is based on a variety of factors, including performance of his or her stock recommendations; contributions to all of the irm’s departments, including asset management, corporate inance, institutional sales, and retail brokerage; irm pro itability; and competitive factors.
OTHER IMPORTANT DISCLOSURESStock ratings, price targets, and valuation methodologies: William Blair & Company, L.L.C. uses a three-point system to rate stocks. Individual ratings and price targets (where used) re lect the expected per-formance of the stock relative to the broader market (generally the S&P 500, unless otherwise indicated) over the next 12 months. The assessment of expected performance is a function of near-, intermediate-, and long-term company fundamentals, industry outlook, con idence in earnings estimates, valuation (and our valuation methodology), and other factors. Outperform (O) – stock expected to outperform the broader market over the next 12 months; Market Perform (M) – stock expected to perform approxi-mately in line with the broader market over the next 12 months; Underperform (U) – stock expected to
105 Robert P. Napoli +1 312 364 8496
William Blair & Company, L.L.C.
underperform the broader market over the next 12 months; not rated (NR) – the stock is not currently rated. The valuation methodologies used to determine price targets (where used) include (but are not limited to) price-to-earnings multiple (P/E), relative P/E (compared with the relevant market), P/E-to-growth-rate (PEG) ratio, market capitalization/revenue multiple, enterprise value/EBITDA ratio, discounted cash low, and others.
Company Pro ile: The William Blair research philosophy is focused on quality growth companies. Growth companies by their nature tend to be more volatile than the overall stock market. Company pro ile is a fundamental assessment, over a longer-term horizon, of the business risk of the company relative to the broader William Blair universe. Factors assessed include: 1) durability and strength of franchise (manage-ment strength and track record, market leadership, distinctive capabilities); 2) inancial pro ile (earnings growth rate/consistency, cash low generation, return on investment, balance sheet, accounting); 3) other factors such as sector or industry conditions, economic environment, con idence in long-term growth prospects, etc. Established Growth (E) – Fundamental risk is lower relative to the broader William Blair universe; Core Growth (C) – Fundamental risk is approximately in line with the broader William Blair uni-verse; Aggressive Growth (A) – Fundamental risk is higher relative to the broader William Blair universe.
The ratings, price targets (where used), valuation methodologies, and company pro ile assessments re lect the opinion of the individual analyst and are subject to change at any time.
Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies—to our clients and our trading desks—that are contrary to opinions expressed in this research. Certain outstanding reports may contain discussions or investment opinions relat-ing to securities, inancial instruments and/or issuers that are no longer current. Always refer to the most recent report on a company or issuer before making an investment decision. Our asset management and trading desks may make investment decisions that are inconsistent with recom-mendations or views expressed in this report. We will from time to time have long or short posi-tions in, act as principal in, and buy or sell the securities referred to in this report. Our research is disseminated primarily electronically, and in some instances in printed form. Electronic research is simultaneously available to all clients. This research is for our clients only. No part of this material may be copied or duplicated in any form by any means or redistributed without the prior written consent of William Blair & Company, L.L.C.
THIS IS NOT IN ANY SENSE A SOLICITATION OR OFFER OF THE PURCHASE OR SALE OF SECURITIES. THE FACTUAL STATEMENTS HEREIN HAVE BEEN TAKEN FROM SOURCES WE BELIEVE TO BE RELI-ABLE, BUT SUCH STATEMENTS ARE MADE WITHOUT ANY REPRESENTATION AS TO ACCURACY OR COMPLETENESS OR OTHERWISE. OPINIONS EXPRESSED ARE OUR OWN UNLESS OTHERWISE STATED. PRICES SHOWN ARE APPROXIMATE.
THIS MATERIAL HAS BEEN APPROVED FOR DISTRIBUTION IN THE UNITED KINGDOM BY WILLIAM BLAIR INTERNATIONAL, LIMITED, REGULATED BY THE FINANCIAL CONDUCT AUTHORITY (FCA), AND IS DIRECTED ONLY AT, AND IS ONLY MADE AVAILABLE TO, PERSONS FALLING WITHIN COB 3.5 AND 3.6 OF THE FCA HANDBOOK (BEING “ELIGIBLE COUNTERPARTIES” AND “PROFESSIONAL CLIENTS”). THIS DOCUMENT IS NOT TO BE DISTRIBUTED OR PASSED ON TO ANY “RETAIL CLIENTS.” NO PERSONS OTHER THAN PERSONS TO WHOM THIS DOCUMENT IS DIRECTED SHOULD RELY ON IT OR ITS CON-TENTS OR USE IT AS THE BASIS TO MAKE AN INVESTMENT DECISION.
“William Blair” and “R*Docs” are registered trademarks of William Blair & Company, L.L.C. Copyright 2014, William Blair & Company, L.L.C. All rights reserved.
CONSUMER
Sharon Zackfia, CFA, Partner +1 312 364 5386Group Head–ConsumerApparel and Accessories, Leisure, Restaurants
Jon Andersen, CFA, Partner +1 312 364 8697Consumer Products
Daniel Hofkin +1 312 364 8965Hardlines, Specialty Retail
Mark Miller, CFA, Partner +1 312 364 8498E-commerce, Broad Assortment and Hardlines, Health and Beauty
Amy Noblin +1 415 248 2874Apparel and Accessories
FINANCIAL SERVICES AND TECHNOLOGY
Adam Klauber, CFA +1 312 364 8232Co-Group Head–Financial Services and TechnologyInsurance Brokers, Property & Casualty Insurance
Robert Napoli, Partner +1 312 364 8496Co-Group Head–Financial Services and TechnologyBusiness Development Companies, Financial Technology, Specialty Finance
Christopher Shutler, CFA +1 312 364 8197Asset Management, Financial Technology
GLOBAL INDUSTRIAL INFRASTRUCTURE
Nick Heymann +1 212 237 2740Co-Group Head–Global Industrial InfrastructureMulti-industry
Larry De Maria, CFA +1 212 237 2753Co-Group Head–Global Industrial InfrastructureCapital Goods
Nate Brochmann, CFA +1 312 364 5385Commercial Services, Logistics/Transportation
Brian Drab, CFA +1 312 364 8280Filtration and Water Management, Industrial Technology
Chase Jacobson +1 212 237 2748Engineered Equipment, Engineering and Construction
Ryan Merkel, CFA +1 312 364 8603Commercial Services, Industrial Distribution
GLOBAL SERVICES
Brandon Dobell, Partner +1 312 364 8773Group Head–Global ServicesEnergy Services, Information Services, Marketing Services, Real Estate Services and Technology
Timo Connor, CFA +1 312 364 8441Education Services and Technology
Timothy McHugh, CFA, Partner +1 312 364 8229Consulting, HR Technology, Information Services, Staffing
HEALTHCARE
Ben Andrew, Partner +1 312 364 8828Group Head–HealthcareMedical Devices
Ryan Daniels, CFA, Partner +1 312 364 8418Healthcare Information Technology, Healthcare Services
Margaret Kaczor +1 312 364 8608Medical Devices
John Kreger, Partner +1 312 364 8597Distribution, Outsourcing, Pharmacy Benefit Management
Tim Lugo +1 415 248 2870Therapeutics
Amanda Murphy, CFA +1 312 364 8951Diagnostic Services, Life Sciences, Pharmacy Benefit Management
Matthew O’Brien +1 312 364 8582Medical Devices
John Sonnier, Partner +1 312 364 8224Biotechnology
Brian Weinstein, CFA +1 312 364 8170Diagnostic Products
Y. Katherine Xu, Ph.D. +1 212 237 2758Biotechnology
TECHNOLOGY, MEDIA, AND COMMUNICATIONS
Jason Ader, CFA, Partner +1 617 235 7519Co-Group Head–Technology, Media, and CommunicationsHardware and Software Infrastructure
Bhavan Suri, Partner +1 312 364 5341Co-Group Head–Technology, Media, and CommunicationsIT and Business Process Services, Software, Software as a Service
Rahul Bhangare +1 312 364 5066IT and Business Process Services
Jim Breen, CFA +1 617 235 7513Internet Infrastructure and Communication Services
Anil Doradla +1 312 364 8016Semiconductors and Wireless
Justin Furby, CFA +1 312 364 8201Software as a Service
Jonathan Ho +1 312 364 8276Cybersecurity, Security Technology
Dmitry Netis +1 212 237 2714Communications Equipment
Ralph Schackart III, CFA, Partner +1 312 364 8753Digital Media, Internet
EDITORIAL
Steve Goldsmith, Head Editor +1 312 364 8540Maria Erdmann +1 312 364 8925Beth Pekol Porto +1 312 364 8924Kelsey Swanekamp +1 312 364 8174Lisa Zurcher +44 20 7868 4549
Equity Research DirectoryJohn F. O’Toole, Partner Manager and Director of Research +1 312 364 8612
Kyle Harris, CFA, Partner Operations Manager +1 312 364 8230