Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — JMP Securities 12th Annual Research Conference (May 2013)
29 slides from Encore Capital's conference presentation, May 14, 2013
Slide 1: Encore Capital Group, Inc. - JMP Securities 12th Annual Research Conference
ENCORE CAPITAL GROUP, INC. May 2013 JMP Securities 12th Annual Research Conference Exhibit 99.1
Slide 2: Cautionary Note About Forward-Looking Statements
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
Slide 3: Encore is a growing company with sophisticated operations and deep consumer expertise
ENCORE IS A GROWING COMPANY WITH SOPHISTICATED OPERATIONS AND DEEP CONSUMER EXPERTISE in American consumers have accounts with us 3.1 million consumers have satisfied their obligations $1.9 billion in estimated remaining collections 27% Adjusted EBITDA † 5-year compound annual growth rate 2,800 empl
Slide 4: 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 Global Capabilities Business Description • Purchase and collection of charged-off unsecured consumer receivables (primarily credit card) • Provision of tax lien transfers, and purchase of tax lien certificates, through Prop
Slide 5: Our first quarter results demonstrated strong growth
Q1 2013 Q1 2012 Increase/ (Decrease) OUR FIRST QUARTER RESULTS DEMONSTRATED STRONG GROWTH Collections $270 $231 17% Revenue $144 $126 14% Cost to collect 36.5% 38.4% (190 bps) Adjusted EBITDA † $174 $144 21% EPS* $0.86 $0.70 23% (in $M - except CTC and EPS) † See endnote for a reconciliation to GAAP
Slide 6: Which continues the trend we've been experiencing for the last several years
WHICH CONTINUES THE TREND WE’VE BEEN EXPERIENCING FOR THE LAST SEVERAL YEARS ($M) * Adjusted EBITDA is a non-GAAP number. The Company considers Adjusted EBITDA to be a meaningful indicator of operating performance and uses it as a measure to assess the operating performance of the Company. See Recon
Slide 7: We continue to drive down our cost-to-collect despite significant investments
WE CONTINUE TO DRIVE DOWN OUR COST-TO-COLLECT DESPITE MAKING SIGNIFICANT INVESTMENTS IN COMPLIANCE AND INTERNAL LEGAL Overall cost to collect
Slide 8: Our valuation and operating capabilities have established Encore as the industry leader
OUR VALUATION AND OPERATING CAPABILITIES HAVE ESTABLISHED ENCORE AS THE INDUSTRY LEADER Cumulative actual collection multiples by vintage year, as of December 31, 2012 (Total collections / Purchase price) Source: SEC filings – For ECPG includes court costs recovered
Slide 9: Encore's key competitive advantages
ENCORE’S KEY COMPETITIVE ADVANTAGES OUR SUCCESS IS DRIVEN BY OUR CORE COMPETENCIES Portfolio valuation and purchasing Operational modeling International operations Account Manager expertise Consumer Credit Research Institute Marketing analytics Legal collections COST LEADERSHIP PRINCIPLED INTENT ANA
Slide 10: Encore provides an essential service and its model should become the industry standard
ENCORE PROVIDES AN ESSENTIAL SERVICE AND ITS MODEL SHOULD BECOME THE INDUSTRY STANDARD Collection time frame Consumer treatment Outcome Contingency collection agency • Four-to-six month collection cycle Pressure • Artificial deadlines • Multiple collection companies • Counterproductive incentive str
Slide 11: Understanding financially stressed consumer behavior is at the heart of our company's evolution
UNDERSTANDING FINANCIALLY STRESSED CONSUMER BEHAVIOR IS AT THE HEART OF OUR COMPANY’S EVOLUTION
Slide 12: This is clearly seen in our approach to asset valuation
Encore’s individual underwriting approach to portfolio valuation accommodates our specialized operational strengths Low willingness Low ability High willingness High capability High willingness Moderate capability High willingness Low capability Low willingness High ability Low willingness Moderate
Slide 13: Significant increase in the number of consumers with multiple obligations
WE’VE SEEN A SIGNIFICANT INCREASE IN THE NUMBER OF CONSUMERS WITH MULTIPLE OBLIGATIONS Multiple obligations held within new portfolios, by purchase vintage (% of unique consumers)
Slide 14: We're building a platform that encourages a different kind of relationship with our consumers
WE'RE BUILDING A PLATFORM THAT ENCOURAGES A DIFFERENT KIND OF RELATIONSHIP WITH OUR CONSUMERS Addressing debt cycles • Acknowledging the limitations of our consumers’ household balance sheets • Living the Consumer Bill of Rights Making focused investments • Creating specialized work groups • Leverag
Slide 15: As we look to the future, we are exploring ways to leverage our core competencies
AS WE LOOK TO THE FUTURE, WE ARE EXPLORING WAYS TO LEVERAGE OUR CORE COMPETENCIES
Slide 16: Last year, we began to diversify through the acquisition of Propel
Leading provider of debt management and recovery solutions for consumers and property owners across a broad range of asset classes LAST YEAR, WE BEGAN TO DIVERSIFY THROUGH THE ACQUISITION OF PROPEL Property Owners Structured payment plans to help residential and commercial property owners settle tax
Slide 17: Our plan was expand in our core market and into other states
OUR PLAN WAS EXPAND IN OUR CORE MARKET AND INTO OTHER STATES Working to penetrate the 80% of the Texas market that has yet to use a tax lien transfer Existing market Lobbying to introduce legislation in other states that will create new markets New markets Exploring alternative tax lien models that
Slide 18: Which has allowed us to grow our portfolio while maintaining an exceptionally low risk profile
WHICH HAS ALLOWED US TO GROW OUR PORTFOLIO WHILE MAINTAINING AN EXCEPTIONALLY LOW RISK PROFILE Propel portfolio size ($M) • $8,750 average balance • 9-year term • 6-year weighted average remaining term • 13-15% typical interest rate Portfolio characteristics • $230,000 average property value • 3.84%
Slide 19: We recently announced the pending acquisition of Asset Acceptance Capital Corp.
Allows us to be highly selective in purchasing opportunities for the remainder of the year Largely satisfies our 2013 purchasing goals Extends Encore’s Consumer Bill of Rights and best practices to millions more consumers Able to leverage best practices across the two platforms WE RECENTLY ANNOUNCED
Slide 20: Full visibility to historical collections
ONE OF THE BENEFITS OF THE TRANSACTION IS THAT WE HAD FULL VISIBILITY TO HISTORICAL COLLECTIONS Aggregated Portfolio: Actual and projected gross collections by month ($,Ms)
Slide 21: Encore is well positioned to provide a solution for competitors who exit the market
Acquisition of competitor’s assets Significant history of acquiring assets in the resale market gave us an analytic advantage when conducting operational due diligence Practice makes perfect Industry-leading models used to estimate individual consumer willingness and ability to pay • Enabled us to i
Slide 22: Confidence tied to successful completion of one of the industry's few deals of this size
Initial expectations: $199M OUR CONFIDENCE IS TIED TO THE SUCCESSFUL COMPLETION OF ONE OF THE INDUSTRY’S FEW DEALS OF THIS SIZE $90M portfolio purchase in 2005, cumulative collections through 3/31/13 ($M) Results to date: $237M Actual collections Estimated collections
Slide 23: Continued strong performance on the large purchase completed last May
Initial expectations: $59M AND THE CONTINUED STRONG PERFORMANCE ON THE LARGE PURCHASE COMPLETED LAST MAY $100M+ portfolio purchase in 2012, cumulative collections through 3/31/13 ($M) Results to date: $77M Actual collections Estimated collections
Slide 24: We are also well within the financial covenants of our credit facility
WE ARE ALSO WELL WITHIN THE FINANCIAL COVENANTS OF OUR CREDIT FACILITY ($M) Covenant analysis Cash flow leverage ratio Debt Trailing 4-quarter Adjusted EBITDA † Debt/Adjusted EBITDA (maximum 2.0x) Minimum net worth Excess room Interest coverage ratio EBIT/interest expense (minimum 2.0x) Q1 2013 Pro
Slide 25: Encore's long-term prospects continue to be strong and are gaining strength
ENCORE’S LONG-TERM PROSPECTS CONTINUE TO BE STRONG AND ARE GAINING STRENGTH • Operating results continue to be strong and are exceeding our internal projections • Tax lien expansion is part of a longer term diversification strategy • Working collaboratively with legislators and policymakers to shape
Slide 26: Note on Adjusted EBITDA
t+ The Company has included information concerning Adjusted EBITDA because management utilizes this information in the evaluation of its operations and believes that this measure is a useful indicator of the Company's ability to generate cash collections in excess of operating expenses through the l
Slide 27: Appendix
APPENDIX
Slide 28: Reconciliation of Adjusted EBITDA
RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In Thousands) Three Months Ended Note: The periods 3/31/08 through 12/31/08 have been adjusted to reflect the retrospective application of ASC 470-20. All periods have been adjusted to show discontinue
Slide 29: Encore Capital Group, Inc.
ENCORE CAPITAL GROUP, INC. May 2013 JMP Securities 12th Annual Research Conference
Encore Capital Group — JMP Securities 12th Annual Research Conference (May 2013) on 6ix