Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — William Blair & Company 33rd Annual Growth Stock Conference (June 2013)
32 slides from Encore Capital's conference presentation, Jun 12, 2013
Slide 1: Encore Capital Group, William Blair 33rd Annual Growth Stock Conference
Exhibit 99.1 ENCORE CAPITAL GROUP, INC. William Blair & Company 33rd Annual Growth Stock Conference June 12, 2013
Slide 2: Cautionary Note About Forward-Looking Statements
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS The statements in this presentation that are not historical facts, including, most importantly, those statements preceded by, or that include, the words “will,” “may,” “believe,” “projects,” “expects,” “anticipates” or the negation thereof, or similar
Slide 3: Encore is a leading player in the consumer debt buying and recovery industry
ENCORE IS A LEADING PLAYER IN THE CONSUMER DEBT BUYING AND RECOVERY INDUSTRY We deploy capital to acquire ... and generate predictable cash delinquent consumer receivables... flows over a multi-year time horizon 2-3x • Purchaser of defaulted consumer credit portfolios & delinquent tax liens Total Ca
Slide 4: Encore provides a principled and essential service
ENCORE PROVIDES A PRINCIPLED AND ESSENTIAL SERVICE Contingency collection agency vs. Original creditor Relationship is Collection • 4-6 months • 84 months to transactional time frame recover financially • Attempt to collect during Pressure Partnership initial delinquency cycle • Consumer is "charged
Slide 5: Our business principles are built on treating consumers fairly and with respect
OUR BUSINESS PRINCIPLES ARE BUILT ON TREATING CONSUMERS FAIRLY AND WITH RESPECT • Acknowledging limitations of our consumers’ Understanding household balance sheets to align recovery plans our consumers • Deploying specialized surveys to test consumer satisfaction • Built specialized non-collections
Slide 6: Encore has delivered a track record of strong, sustainable financial results
ENCORE HAS DELIVERED A TRACK RECORD OF STRONG, SUSTAINABLE FINANCIAL RESULTS Cash Collections ($M) Cost to Collect (%) -1100 BPS +22% Strong business fundamentals... Adjusted EBITDA 1 ($M) Earnings Per Share 2 ($) +27% +42% ...driving profitable growth 1. Adjusted EBITDA is a non-GAAP number which t
Slide 7: Continued strong results this year
AND HAS CONTINUED TO BUILD UPON THIS PERFORMANCE WITH STRONG RESULTS THIS YEAR Year over year financial results Increase/ Q1 2013 Q1 2012 (Decrease) Collections $270 $231 17% Revenue $144 $126 14% Cost to collect 36.5% 38.4% (190 bps) 1 Adjusted EBITDA $174 $144 21% EPS 2 $0.86 $0.70 23% 1. Adjusted
Slide 8: We have rapidly gained scale and positioned the company for sustained growth
WE HAVE RAPIDLY GAINED SCALE AND POSITIONED THE COMPANY FOR SUSTAINED GROWTH Estimated Remaining Collections in core receivables ($M) 2,000 1,967 +17% 1,571 1,500 1,389 1,160 1,063 1,000 892 500 0 2007 2008 2009 2010 2011 2012 Note: Excludes the ~$1B in ERC of AACC; Also excludes £908M in ERC of Cab
Slide 9: Scale created by market leading investments
THIS SCALE HAS BEEN CREATED BY MARKET LEADING INVESTMENTS Capital deployed in core receivables ($M) 600 562 +22% 400 387 362 257 230 209 200 0 2007 2008 2009 2010 2011 2012 PROPRIETARY 9
Slide 10: Industry leading total shareholder return over the past 5 years
WE HAVE DELIVERED INDUSTRY LEADING TOTAL SHAREHOLDER RETURN OVER THE PAST 5 YEARS Total Shareholder Return (Dec. 2007-Dec. 2012) (%) Encore Capital: 26% 300 200 S&P Top Quartile 1: 10% S&P Index: 2% 100 Nasdaq Finance: (2%) 0 2008 2009 2010 2011 2012 2013 1. Top Quartile tracks the dollar weighted a
Slide 11: Well positioned to maintain momentum and deliver top quartile TSR
WE ARE WELL POSITIONED TO MAINTAIN OUR MOMENTUM AND 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 Business
Slide 12: Our superior analytics stem from investments to better understand consumers
OUR SUPERIOR ANALYTICS STEM FROM OUR INVESTMENTS TO BETTER UNDERSTAND CONSUMERS... Reporting and Statistical Predictive Industrialized alerts analysis and modeling and behavioral forecasting optimization science Basic Simple Advanced R&D that consumer models to models focused includes field segmenta
Slide 13: Consumer level portfolio valuation
...WHICH IS CLEARLY SEEN IN OUR APPROACH TO CONSUMER LEVEL PORTFOLIO VALUATION High willingness Low willingness High capability High ability Strong partnership Encore’s individual Enforce legal contract and recovery underwriting approach through formal channels opportunities to portfolio valuation a
Slide 14: Analytics investments increased effectiveness by 11%
THROUGH OUR INVESTMENTS IN ANALYTICS OUR EFFECTIVENESS HAS INCREASED BY 11% 1 Improved liquidation in our call center channel 2 Indexed liquidation rate 120 +11% Impact of 11% improvement in liquidation (2008-2012) 111 110 • In 2012, we collected $442M through our call center channel 100 100 • In 20
Slide 15: Industry leading cost platform driven by operational improvements
WE HAVE THE INDUSTRY LEADING COST PLATFORM, DRIVEN BY CONTINUING OPERATIONAL IMPROVEMENTS Overall Cost to Collect (%) Improving analytics Increased specialization in call centers Scaling Indian call center 51.5 50.2 Internal Legal investments 47.6 43.7 42.2 40.4 36.5 2007 2008 2009 2010 2011 2012 Q1
Slide 16: Efficient capital stewardship is critical to Encore's success
EFFICIENT CAPITAL STEWARDSHIP IS CRITICAL TO ENCORE'S SUCCESS • Debt is our working capital External – Capital deployment business capital which generates strong cash • Reinvest flows in core • Adjacent Portfolio • Strong cash flow allows for Spaces purchases TSR driving investments • Return to shar
Slide 17: Ability to quickly raise capital supported by estimated remaining collections
WE HAVE A STRONG ABILITY TO QUICKLY RAISE CAPITAL WHICH IS SUPPORTED BY OUR ESTIMATED REMAINING COLLECTIONS Estimated Remaining Collections (ERC) vs. Net Debt ($M) 1 3,000 Net Debt. Gross ERC 2 Gross ERC less Cost to Collect and Taxes 2,000 1,000 0 2007 2008 2009 2010 2011 2012 Q1 2013 w/AACC 1. Inc
Slide 18: Our estimate of remaining collections is conservative
WE BELIEVE THAT OUR CURRENT ESTIMATE OF REMAINING COLLECTIONS IS CONSERVATIVE Cumulative Collections - initial expectation vs. actual ($M) 6,000 4,000 Actual cash collections 2,000 Initial projections 0 PROPRIETARY 18
Slide 19: Ability to raise capital allows supplemental growth in adjacent spaces
OUR ABILITY TO RAISE ADDITIONAL CAPITAL ALLOWS US TO PURSUE SUPPLEMENTAL GROWTH IN ADJACENT SPACES We have the debt markets expertise ...and structure our debt to maximize to fund new opportunities... flexibility for future growth Total debt availability ($M) • Propel facilities are incremental 1,50
Slide 20: Capital deployment strategy focuses on attractive total shareholder return
OUR CAPITAL DEPLOYMENT STRATEGY FOCUSES ON DELIVERING ATTRACTIVE AND SUSTAINABLE TOTAL SHAREHOLDER RETURN Deployment priorities Principles for capital deployment • All investments bound by IRR guidelines Reinvestments in core receivables business • Maintain operational flexibility with a range of co
Slide 21: Deals and initiatives that align with our core business
WE HAVE PURSUED DEALS AND INITIATIVES THAT ALIGN WITH OUR CORE BUSINESS Secured Cover Outsourcing different services assets type of debt Focus on bankruptcy Performing $83.6M Bankrupt assets investment accounts in BK paper in 2012 Expand geographically New asset International classes PROPRIETARY 21
Slide 22: Asset Acceptance deal adds $1 billion to our ERC
THE ASSET ACCEPTANCE DEAL IS WELL ALIGNED WITH OUR STRATEGY AND ADDS $1 BILLION TO OUR ERC Largely satisfies our 2013 purchasing goals with attractive vintages Allows us to be selective in purchases for the remainder of the year Able to leverage best practices across the two platforms to drive syner
Slide 23: Track record acquiring portfolios from other debt purchasers
WE HAVE A STRONG TRACK RECORD ACQUIRING PORTFOLIOS FROM OTHER DEBT PURCHASERS SIMILAR TO AACC $90M portfolio purchased in 2005 $100+M portfolio purchased in 2012 Cash Collections ($M) Cash Collections ($M) 300 Results to date: 80 Results to date: $237M $77M 60 200 40 Initial Initial 100 expectations
Slide 24: Synergy value at AACC
WE CAN LEVERAGE OUR PLATFORM AND CAPABILITIES TO REALIZE SUBSTANTIAL SYNERGY VALUE AT AACC Source of value Impact 1 Deeper consumer insight and analytics: CCM target More focused segmentation and targeting, of ~2.0 – 2.5x resulting in better collections 2 Lower cost structure: Leverage Encore's Matc
Slide 25: Significant progress executing our plans for Propel
WE HAVE MADE SIGNIFICANT PROGRESS EXECUTING OUR PLANS FOR PROPEL Our plan What we've delivered • Working to penetrate the • Developed & implemented Existing 80% of the Texas market model for direct mailing market that doesn't use tax lien • Started outbound calling transfers w/existing Encore facili
Slide 26: Growth in Propel portfolio while maintaining low risk profile
RESULTING IN GROWTH IN THE SIZE OF OUR PORTFOLIO WHILE MAINTAINING AN EXCEPTIONALLY LOW RISK PROFILE Propel portfolio size ($M) 200 154 137 121 99 100 0 2010 2011 2012 Q1 2013 Texas portfolio characteristics • $8,750 average balance • $230,000 average property value • 8-year term • 4.6% average LTV
Slide 27: Cabot is the leading purchaser of debt in the U.K.
CABOT IS THE LEADING PURCHASER OF DEBT IN THE U.K. Cabot was the leading purchaser of debt in the U.K. in 2012 Market leader in U.K. debt management For FY 2012 • Over 14 years of collections growth • Operations in Great Britain and Ireland 1 Cabot 130 Specializes in higher balance, “semi- performin
Slide 28: Encore provides Cabot with several synergy opportunities
ENCORE PROVIDES CABOT WITH SEVERAL SYNERGY OPPORTUNITIES • Deploy Encore's superior analytical Leverage capabilities to the Cabot platform Encore's • Focus on improving account analytics segmentation and specialized collection strategies Leverage • Enhance collections by leveraging Encore's Encore's
Slide 29: Acquisition of Cabot to continue strong earnings growth
ENCORE'S ACQUISITION OF CABOT WILL PROVIDE A VEHICLE TO CONTINUE ITS STRONG EARNINGS GROWTH Growing market Encore can deploy capital in a growing market Profitable market Portfolio IRRs are strong and favorable Timeline Deal expected to close in Q3 of 2013 1 Encore EPS Supports Encore's 15% long-ter
Slide 30: Well positioned to maintain momentum and deliver top quartile TSR
WE ARE WELL POSITIONED TO MAINTAIN OUR MOMENTUM AND 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 Business
Slide 31: Appendix
APPENDIX — eco PROPRIETARY
Slide 32: Reconciliation of Adjusted EBITDA
RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In Thousands) Three Months Ended 3/31/08 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 GAAP net income, as reported 6,751 6,162 3,028 (2,095) 8,997 6,641 9,