Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q3 2013 Earnings Presentation
36 slides from Encore Capital's earnings presentation, Nov 7, 2013
Slide 1: Encore Capital Group, Inc. Q3 2013 Earnings Call
Exhibit 99.1 Encore Capital Group, Inc. Q3 2013 EARNINGS CALL
Slide 2: Cautionary Note About Forward-Looking Statements
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS The statements in this presentation that are not achievements of the Company and its subsidiaries historical facts, including, most importantly, those to be materially different from any future results, statements preceded by, or that include, the wor
Slide 3: Encore Delivered a Record Quarter
ENCORE DELIVERED A RECORD QUARTER GAAP EPS* Adjusted EPS** Collections $380 million $0.82 $1.02 Adjusted EBITDA** GAAP Net Income* Adjusted Net Income** $234 million $22 $27 Cost to Collect*** million million 40.7% Estimated Remaining Collections of $4.0 billion * From continuing operations attribut
Slide 4: Year to Date Performance Has Been Strong
YEAR TO DATE PERFORMANCE HAS BEEN STRONG GAAP EPS* Adjusted EPS** Collections $2.06 $2.74 $928 million Adjusted EBITDA** GAAP Net Income* Adjusted Net Income** $586 million $53 $69 Cost to Collect*** million million 38.9% * From continuing operations attributable to Encore ** Please refer to Appendi
Slide 5: Our Strategic Moves Are Bearing Fruit
OUR STRATEGIC MOVES ARE BEARING FRUIT Asset Acceptance Cabot Credit Management Propel Continued to move accounts to Analysis well underway to Now in 9 states Encore - 835k in Q3 expand into new market First Nevada tax lien transfer Collections were ahead of plan segments executed Expenses were under
Slide 6: Growth in Deployments Was Led by the Acquisition of Cabot Credit Management
GROWTH IN DEPLOYMENTS WAS LED BY THE ACQUISITION OF CABOT CREDIT MANAGEMENT DEPLOYMENTS PROPEL DEPLOYMENTS CABOT DEPLOYMENTS Market comments US direct-from-issuer pricing pressure remains, with consolidation among fewer, more stable buyers UK market dominated by a few large players UK issuer invento
Slide 7: The Cabot Transaction Resulted in Strong Growth in ERC
THE CABOT TRANSACTION RESULTED IN STRONG GROWTH IN ERC Estimated Remaining Collections $M 4,022 1,503 2,741 961 2,519 1,983 1,890 1,967 1,911 1,780 1,724 Encore ERC Asset Acceptance ERC Cabot ERC PROPRIETARY 7
Slide 8: Our Integration Plan for AACC Remains on Track
OUR INTEGRATION PLAN FOR AACC REMAINS ON TRACK Pre-close Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Synergy Identification Integration Planning Retention Agreements Support Function Rationalization IL Acct Placement and Internal Legal Platform Integration conversion Call Center Rationalization Coll
Slide 9: Propel Continues to Grow and Contribute to Encore
PROPEL CONTINUES TO GROW AND CONTRIBUTE TO ENCORE $100 million of Now operating in 9 Funded first tax lien capital deployed YTD states transfer in Nevada Capital Deployed Revenue Operating Income 70 6.0 2.0 60 5.0 1.5 50 4.0 40 1.0 3.0 30 20 2.0 0.5 10 1.0 0 0.0 0.0 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 PROPRI
Slide 10: Cabot's Q3 Results Were Strong and in Line with Our Investment Model
CABOT’S Q3 RESULTS WERE STRONG AND IN LINE WITH OUR INVESTMENT MODEL Adjusted EBITDA* Collections Cost to Collect** $50.6 $67.4 million Million Portfolio purchases Revenue 27.2% $27.0 $46.5 million million 120-Month Estimated Remaining Collections of $1.5 billion * Please refer to Appendix for recon
Slide 11: Our Focus at Cabot Is to Begin Leveraging Our India Site
OUR FOCUS AT CABOT IS TO BEGIN LEVERAGING OUR INDIA SITE DURING THE DAY HOURS IN Q1 2014 ROADMAP – CABOT INDIA OPERATIONS LAUNCH 9/1 9/15 10/1 10/15 11/1 11/15 12/1 12/15 1/1 1/15 2/1 2/15 Where we Kick-off are today People selection & onboarding Visa/ Travel Onshore class room training readiness On
Slide 12: Regulatory Developments Continue to Have a Meaningful Effect on the Industry
REGULATORY DEVELOPMENTS CONTINUE TO HAVE A MEANINGFUL EFFECT ON THE INDUSTRY Office of the Consumer Financial Comptroller of the Protection Bureau Currency (OCC) (CFPB) Debt Sales Best Practices Advanced Notice of Memo – 3Q13 Proposed Rulemaking Emphasizes importance of (ANPR) – 4Q13 vendor manageme
Slide 13: Encore Has Long Shared Regulators' Vision to Raise Industry Standards
ENCORE HAS LONG SHARED REGULATORS’ VISION TO RAISE INDUSTRY STANDARDS Encore Initiatives Outcomes Regulators Consumer Credit Research Institute Benefit to consumers Consumer Bill of Regulatory clarity & Rights OCC balance Consumer Experience Council Industry consolidation CFPB Enterprise Risk Strong
Slide 14: Encore Is Well Positioned to Maintain Momentum and Deliver Top Quartile TSR
ENCORE IS WELL POSITIONED TO MAINTAIN ITS MOMENTUM & CONTINUE DELIVERING TOP QUARTILE TSR Top Quartile Total Shareholder Return Growth, Margin Expansion, Free Cash Flow, PE Multiple Expansion 1 2 3 4 Superior Operational Scale Strong Capital Extendable Analytics & Cost Leadership Stewardship Busines
Slide 15: Detailed Financial Discussion
Detailed Financial Discussion 15
Slide 16: The AACC and Cabot Acquisitions Accelerated Q3 Collections
THE AACC AND CABOT ACQUISITIONS ACCELERATED Q3 COLLECTIONS Core Collections - Collection Sites - Legal Collections $M $M - Collection Agencies - Cabot 400 380 400 67 350 300 40 300 21 27 270 278 14 18 11 13 250 241 246 200 154 231 230 11 122 134 10 110 115 111 113 200 189 186 95 96 100 150 110 112 1
Slide 17: Strong Collections Led to Solid Revenue Growth
STRONG COLLECTIONS LED TO SOLID REVENUE GROWTH Revenue From Core Collections $M 250 225 200 152 150 139 141 140 141 126 116 116 100 50 - Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 PROPRIETARY 17
Slide 18: Collection Multiples Continue to Increase Over Time
COLLECTION MULTIPLES CONTINUE TO INCREASE OVER TIME 3.0 2.5 2.0 1.5 1.0 0.5 - 2009 2010 2011 2012 Expected Multiple at Purchase Current Multiple PROPRIETARY 18
Slide 19: Encore's Cost to Collect Fully Reflects AACC's and Cabot's Operations
ENCORE’S COST TO COLLECT FULLY REFLECTS AACC’S AND CABOT’S OPERATIONS Overall Cost to Collect* 50% Channel Q3 2013 Q3 2012 44% 44% 43% CTC CTC 41% 41% Cabot 27.2% 24.5% 40% 40% 39% Legal 39.6% 41.5% 38% 37% Core sites 8.4% 5.9% 30% Q3 2011 Q4 2011Q1 2012 Q2 2012Q3 2012Q4 2012Q1 2013Q2 2013Q3 2013 *
Slide 20: Cost to Collect in Internal Legal Is Declining
AFTER SEVERAL QUARTERS OF INVESTMENT, COST TO COLLECT IN INTERNAL LEGAL IS DECLINING Legal Outsourcing Cost to Collect Internal Legal Cost to Collect 50% 450% 40% 300% 30% 150% 20% 100% 10% 50% 0% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2011 2011 2011 2012 2012 2012 20
Slide 21: Collections Growth and Cost Improvements Led to Improved Cash Flows
COLLECTIONS GROWTH AND COST IMPROVEMENTS LED TO IMPROVED CASH FLOWS Adjusted EBITDA* 250 234 200 174 177 148 151 150 144 135 107 105 100 50 - Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 * Please refer to Appendix for reconciliation of Adjusted EBITDA to GAAP PROPRIETARY 2
Slide 22: We Saw Improvement in Our Effective Tax Rate
WE SAW IMPROVEMENT IN OUR EFFECTIVE TAX RATE 45% 5.2% 40% 35.0% 1.8% 35% (1.8%) (4.0%) 1.1% 32.5% 30% (4.8%) 25% 20% 15% 10% 5% 0% Federal Provision State Provision State Benefit Changes in State Tax Reserves International Permanent Items Q3 Effective Apportionment Provision Rate PROPRIETARY 22
Slide 23: Encore's Q3 Adjusted EPS Set a Record of $1.02
ENCORE’S Q3 ADJUSTED EPS SET A RECORD OF $1.02 PER FULLY DILUTED SHARE $0.18 $(0.05) $0.99 $1.02 $0.04 $0.82 Net income per diluted Net non-cash interest Acquisition related legal Effect of tax credits Adjusted net income Adjusted net income share from continuing and issuance cost and advisory fees,
Slide 24: Our Convertible Hedge Has Protected Us from Significant Economic Dilution
OUR CONVERTIBLE HEDGE HAS PROTECTED US FROM SIGNIFICANT ECONOMIC DILUTION Q3 GAAP Fully Diluted Shares Outstanding 27.2 million (-) Shares from 2017 Bond Hedge 0.8 million – Issued $115 million of convertible bonds, due in Non-GAAP Economic Shares Outstanding 26.4 million 2017 Adjusted Income from C
Slide 25: Encore's Ownership of Cabot Reflects Minority Interests of J.C. Flowers and Management
ENCORE’S OWNERSHIP OF CABOT REFLECTS THE MINORITY INTERESTS OF J.C. FLOWERS AND MANAGEMENT JFC III Europe Encore Holdings L.P. (US) (Cayman) Encore Europe JFC III Europe Holdings s.a.r.l. s.a.r.l. (Lux) (Lux) 50.1% 49.9% $177 million, consisting of: $165 million - PECs $12 million - shares Janus Hol
Slide 26: Cabot Contributed $0.17 to Encore's Q3 Results
CABOT CONTRIBUTED $0.17 TO ENCORE’S Q3 RESULTS In 000’s except per share amounts Janus Encore Europe Holdings EEH Consolidated Revenue / other income $46,568 - $46,568 Total Expenses (22,179) - (22,179) EBITDA 24,389 - 24,389 Depreciation and Amortization (1,461) - (1,461) Non-PEC Interest Expense (
Slide 27: Encore's Long-Term Prospects Continue to Be Favorable
ENCORE’S LONG-TERM PROSPECTS CONTINUE TO BE FAVORABLE Geographic & Operating Results Liquidity & Solid Cash Flows Asset Class & Deployment Capital Access Diversification A culture of constant Strong liquidity and Additional asset classes We are an international improvement drives access to capital e
Slide 28: Appendix
Appendix 28
Slide 29: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES This presentation includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company has included information concerning Adjusted EBITDA
Slide 30: Reconciliation of Adjusted EPS
RECONCILIATION OF ADJUSTED EPS Reconciliation of Adjusted EPS to GAAP EPS (Unaudited, in thousands, except per share amounts), Three Months Ended September 30, 2013 2012 Per Diluted Per Diluted Per Diluted Per Diluted Share – $ Share – Economic $ Share – Share – Accounting Accounting Economic Net in
Slide 31: Reconciliation of Adjusted EPS
RECONCILIATION OF ADJUSTED EPS Reconciliation of Adjusted EPS to GAAP EPS (Unaudited, in thousands, except per share amounts), Nine Months Ended September 30, 2013 2012 Per Diluted Per Diluted Per Diluted Per Diluted Share – $ Share – Economic $ Share – Share – Accounting Accounting Economic Net inc
Slide 32: Reconciliation of Adjusted EBITDA
RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In Thousands) Three Months Ended 6/30/08 9/30/08 12/31/08 3/31/09 6/30/09 9/30/09 12/31/09 3/31/10 6/30/10 9/30/10 12/31/10 3/31/11 GAAP net income, as reported 6,162 3,028 (2,095) 8,997 6,641 9,004 8,
Slide 33: Reconciliation of Adjusted EBITDA - Cabot
RECONCILIATION OF ADJUSTED EBITDA - CABOT Reconciliation of Adjusted EBITDA to GAAP net income (Unaudited, In Thousands) Three Months Ended September 30, 2013 GAAP net income attributable to Encore Europe Holdings s.a.r.l. 4,380 Loss from noncontrolling interest (822) GAAP net income 3,558 Adjustmen
Slide 34: Reconciliation of Adjusted Operating Cost
RECONCILIATION OF ADJUSTED OPERATING COST Reconciliation of Adjusted Operating Cost to GAAP Operating Cost (Unaudited, In Thousands) Three Months Ended 9/30/11 12/31/11 3/31/12 6/30/12 9/30/12 12/31/12 3/31/13 6/30/13 9/30/13 GAAP total operating expenses, 89,804 97,048 91,394 102,809 103,621 103,87
Slide 35: Reconciliation of Adjusted Operating Cost - Cabot
RECONCILIATION OF ADJUSTED OPERATING COST - CABOT Reconciliation of Adjusted Operating Cost to GAAP Operating Cost (Unaudited, In Thousands) Three Months Ended September 30, 2012 September 30, 2013 GAAP total operating expenses, as reported $17,735 $23,640 Adjustments: Operating expense related to o
Slide 36: Encore Capital Group, Inc. Q3 2013 Earnings Call
Encore Capital Group, Inc. Q3 2013 EARNINGS CALL