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info@champouse.com
CHAMPOUSE
GROUP
2015
CONFIDENTIAL
Disclaimer
The analyses and conclusions of Champouse Group LLC ("Champouse") contained in this presentation are
based on publicly available information. Champouse recognizes that there may be confidential information in the possession
of the companies discussed in the presentation that could lead these companies to disagree with Champouses conclusions.
This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities.
Champouse has not sought or obtained consent from any third party to use any statements or information indicated herein
as having been obtained or derived from statements made or published by third parties. Any such statements or information
should not be viewed as indicating the support of such third party for the views expressed herein. No warranty is made that
data or information, whether derived or obtained from filings made with the SEC or from any third party, are accurate.
The analyses provided may include certain statements, estimates and projections prepared with respect to, among other
things, the historical and anticipated operating performance of the companies, access to capital markets and the values of
assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Champouse concerning
anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies
and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy
or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results
may vary materially from the estimates and projected results contained herein. Accordingly, no party should purchase or
sell securities on the basis of the information contained in this presentation. Champouse expressly disclaims
liability on account of any partys reliance on the information contained herein with respect to any such purchases
or sales.
Funds managed by Champouse and its aliates have invested in the equity CreditRiskMonitor Com Inc.
Champouse manages funds that are in the business of buying and selling securities and financial instruments. It
is possible that there will be developments in the future that cause Champouse to change its position regarding the
companies discussed in this presentation. Champouse may buy, sell, cover or otherwise change the form of its investment
regarding such companies for any reason. Champouse hereby disclaims any duty to provide any updates or changes to the
analyses contained here including, without limitation, the manner or type of any Champouse investment.
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Contents
Overview
Key Considerations
Fundamental Service
Industry Dynamic
10
Competitive Landscape
11
12
CRMZs Opportunity
13
14
14
Revenue-Expense Mismatch
16
16
Financial Comparison
19
Final Remarks
20
Valuation
21
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Overview
CreditRiskMonitor.com Inc
704 Executive Blvd Ste A
Valley Cottage, NY 10989
(845) 230-3000
(1/25/15)
Ticker
Exchange
Industry
CRMZ
Stock Price
Shares Outstanding
Market Capitalization
$2.50
8,025,867
$20,064,668
CreditRiskMonitor (CRMZ) is one of a handful of Champouse Groups high conviction investment ideas. CRMZ is
currently undervalued due to the companys small size and very misleading financial presentation. The company
has exceptional investment merit without the need for liberal assumptions. Additionally, Champouse is of the
impression that the companys durable economics, future prospects and low-to-fair market price provides a wide
margin of safety thereby limiting downside risk.
Key Considerations
Adjusting the financial presentation is paramount to understanding the economic attractiveness of CRMZs
underlying business. As a result of conservative accounting, the company overstates operating expenses which
understates earnings. In addition, a review of the companys balance sheet reveals the presence of a very large
non-economic liability. Adjustments to these financial items (i) uncovers the normal earning power of the
companys underlying business and (ii) provides valuable insight into the companys future. (Page 17)
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CRMZs Fundamental Service is an annual fixed-price service with unlimited usage and coverage of public companies. This
service features multi-period financial reports, ratio analysis and real-time financial news screened specifically for
usefulness in credit evaluation available both on CRMZs online system as well as delivered directly to customers via email.
The Fundamental Service is supplemented with trade receivable data contributed mainly by CRMZs subscribers, as well as
U.S. public-record filing information (i.e., suits, liens, judgments and bankruptcy information covering millions of public and
private U.S. companies).
Furthermore, the Fundamental Service features the companys proprietary credit score, the FRISK score. This
proprietary score indicates financial distress by predicting the probability of bankruptcy within the next 12 months.
Calculation of the FRISK score involves preparation of data from multiple sources, the use of executable software created
expressly by and owned by the company as well as sophisticated algorithms and weighting techniques which are proprietary
company trade secrets. At the end of 2013, the Fundamental Service covered over 57,000 public companies worldwide.
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CRMZs Credit Limit Service for public companies enables customers to:
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white Paper
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Industry Dynamic
CRMZ controls a niche within the broader commercial credit reporting industry that is largely dominated by Dun &
Bradstreet (D&B). This industry sells credit reports to companies interested in the credit risk of the customers
with which they do business. There are millions of companies for which credit reports may be purchased. CRMZs
area of focus is on the coverage of roughly 22,000 publicly traded companies, whereas their competitors
specialize in and focus on private company coverage, but also cover public companies.
To put the market into context, the vast majority of the revenues generated by D&Bs North American Risk
Management Solutions division in 2013 ($693.2 million) derive from the sale of private company credit reports.
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Industry Dynamic
Competitive Landscape
The industrys incumbents enjoy dominant positions largely as a result of having free access to trade receivable
data (the the essential component of a private business credit report). Free access to large amounts of
commercial account receivable trade data is extremely valuable, highly sought after and extremely difficult to
acquire. CRMZ decided to circumvent this difficulty by first establishing itself as a provider of credit reports on
public companies because the company thought (correctly) that it could make use of publicly available data to
generate meaningful reports for the credit industry. To facilitate this process, the company carefully selected and
hired away a handful of the very best database programers and credit experts from D&B and other industry
leaders. CRMZs successful entry into this market was far from easy and took over a decade. New entrants
wanting to expedite entry must find a way to gain access to trade credit data. Unfortunately in North America,
the only way for entrants to acquire this information is to buy it from one of the three large incumbents.
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Industry Dynamic
Large Barriers to Entry: An Illustrative Example
The difficulty and expense of acquiring trade histories should not be overlooked. As an illustration, consider a
company that has struggled to make an entry into this industry for well over a decade. Since 1993, Cortera
(formerly e-credit), invested over $190 million in operating capital and still does not, to Champouses knowledge,
earn a profit. Cortera gained access to private business trade histories by paying Experian for access to their
trade data. Champouses research suggests that the arrangement included very large upfront costs and required
Cortera to also pay a significant percentage of their gross revenues to Experian. Unfortunately, in mid-2014,
Experian terminated this arrangement.
Capital Raised
Notes:
1993-2003
2006
2008
2010
2011
1993-2011
$100m
$11m
$8m
$20m
$49.7m
$188.7m
75 employees
Still
unprofitable
Projected
revenues of
$10-20m
Name change
from e-credit to
Cortera
Nearing
profitability
12
Private stock
offering
2012 est.
employees 100
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Industry Dynamic
CRMZs Opportunity
CRMZ is in a very unique market position. Typically, small market share precludes scale advantages, however,
through extensive, deliberate automation, CRMZ successfully operates as the industrys low cost provider (80%
below D&B). While not an immediate threat to the large incumbents, Champouse Group believes that a
significant increase in CRMZ's market share is steadily (if not rapidly) approaching.
As indicated on page 9, CRMZ quietly expanded its capacity to cover private companies by gaining access trade
data from a large number of subscribers and non-subscribers. A few years ago, several Fortune 1000 companies
started offering CRMZ trade receivable data-without CRMZ even asking for it. Seeing a huge opportunity, Jerry
Flum (the companys CEO & Founder), decided to heavily invest in the development of a new trade receivable
database system. This initiative began in August 2012 and has been very well received by the companys
subscribers. Champouses research suggests that CRMZ is acquiring trade payment histories at a pace which will
allow CRMZ to begin stealing significant market share from D&B, Experian and Equifax within the next few years.
Beyond the significance of rapidly increasing market share, recognizing the development of this database is an
important component to understanding CRMZs current underlying business value. The company employs very
conservative accounting; CRMZ expenses database development costs in full as incurred, which has the
consequence of distorting normal earnings. This and other similar items are addressed in the following sections.
13
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14
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15
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Financial Adjustments
Adjusting the financial presentation is paramount to understanding the companys
normal earning power.
Revenue-Expense Mismatch
CRMZ provides a subscription-based service to customers who pay the full subscription amount at the time of
purchase. The standard accounting procedure is to recognize this revenue over the life of the subscription period.
In other words, for the quarter in which CRMZ sells a new subscription, the companys financial statements will
only reflect 25% of that revenue-even though the company received, and has the benefit and full use of, the
entire payment. One might argue this is of little consequence on an annual basis, however, a large amount of the
companys expenses are commissions that the company pays to its sales agents at the time of a new sale. This
results in a revenue-expense mismatch. Meaning, in any given quarter, when new subscriptions are increasing,
expenses increase faster than revenues, which distorts the companys stated operating and net income figures.
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Financial Adjustments
Normal Current Earnings
A normal earnings figure represents the earning power of the company under normal circumstances e.g., after
adjusting for any special items-which we have already addressed. In CRMZs case, we need to eliminate database
development costs from the companys expenses because this expense could be eliminated without disrupting the
companys current underlying business. Such an adjustment will then provide a more appropriate presentation of
the companys true economic reality.
As presented in the table below, adjusted operating earnings are more than double stated operating income
reported in the company's financial statements.
TTM
Y2013
Y2012
Y2011
Y2010
12,075
11,837
11,062
10,154
9,343
4,679
4,438
3,731
3,310
2,429
514
618
974
1,212
1,676
TTM
Y2013
Y2012
Y2011
Y2010
1,993
1,882
1,795
1,708
1,676
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Financial Adjustments
Required Operating Capital
Q52(2014
Q51(2014
Q54(2013
Q53(2013
8,947
8,784
7,982
8,047
8,653
1,764
1,304
1,570
1,707
1,062
33Other3current3assets
738
776
454
581
583
3333Total3current3assets
11,451
10,866
10,007
10,336
10,298
ASSETS
Current3assets:
Cash3equivalents3and3marketable3securi0es
33Receivables
Property3and3equipment,3net
Goodwill
343
367
415
422
384
1,954
1,954
1,954
1,954
1,954
34
40
50
23
34
13,782
13,227
12,428
12,736
12,672
6,517
Prepaid3and3other3assets
3333Total3assets
LIABILITIES3AND3STOCKHOLDERS3EQUITY
Current3liabili0es:
33Deferred3revenues
7,204
6,972
7,042
6,692
33Accounts3payable
148
75
59
86
76
33Accrued3expenses
1,531
1,417
744
1,280
1,154
3333Total3current3liabili0es
8,883
8,465
7,846
8,058
7,748
705
725
793
636
591
9,592
9,195
8,644
8,700
8,345
4,190
4,032
3,783
4,036
4,326
Q53(2014
4,190
Q52(2014
4,032
Q51(2014
3,783
Q54(2013
4,036
Q53(2013
4,326
493
266
890
727
237
Deferred3taxes3on3income
Other3liabili0es
3333Total3liabili0es
3333Total3stockholders'3equity
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Financial Comparison
As Reported
Adjusted*
$514,000
1,993,150
$4,190,186
$492,668
14%
260%
9%
39%
P/E (pre-tax)
65x
16x
*Champouse estimates
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Final Remarks
As long as CRMZ continues to increase its subscriber base by roughly 10% per year,
Champouse Group is of the impression that the purchase of CRMZ at a price of $3.00/sh
should generate investors a return in excess of 20% annually, over a three-to-five-year
period.
The purchase of CRMZ should not and does not turn on the expectation of gaining significant future market share.
CRMZ is a wonderful business that earns extremely high returns on required capital without the use of debt.
CRMZs operating costs are largely fixed. As revenues increase, CRMZs earnings will increase also, but at a more
rapid rate due to increasing margins. Moreover, the cost to acquire a new customer does not require the company
to fully reinvest earnings. Meaning, the company will have an increasing amount of cash with which to repurchase
stock, pay a dividend, use for advertising, etc. In the longer term, the cash balance should become substantial
and sensible allocation of this capital will add significantly to the companys value.
In addition to acquiring a great underlying business at a reasonable price, an investment in CRMZ also offers the
added bonus of free optionality in the event the companys trade receivable program ultimately leads to a more
rapid increase in market share. To put this into context, were CRMZ to take 5% market share in North
America, the value of company would reasonably exceed $500 million.
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Valuation
Minimum
$20 million
Fair
$45 million
Liberal
$100 million
21