Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — JMP Securities Financial Services and Real Estate Conference 2011
28 slides from Encore Capital's conference presentation, Sep 26, 2011
Slide 1: Encore Capital Group – JMP Securities Financial Services and Real Estate Conference
Exhibit 99.1 Encore Capital Group JMP Securities Financial Services and Real Estate Conference September 26, 2011
Slide 2: Cautionary Note About Forward-Looking Statements
2 CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS 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 “may,” “believe,” “projects,” “expects,” “anticipates” or the negatio
Slide 3: Investment Highlights
3 INVESTMENT HIGHLIGHTS • Investments made over the past few years have driven significant improvements in collections, cash flow and earnings • Difficult regulatory environment being managed proactively • Expanding presence in India, combined with new strategic initiatives, are expected to continue
Slide 4: Encore Is a Leading Player in the Consumer Debt Buying and Recovery Industry
4 Call Center / Technology Site Call Center Site Ascension Call Center Site Headquarters/ Call Center Site ENCORE IS A LEADING PLAYER IN THE CONSUMER DEBT BUYING AND RECOVERY INDUSTRY Revenue Composition As of June 30, 2011 Global Capabilities Debt Purchasing & Collections Bankruptcy Servicing • Pur
Slide 5: Strategic Decisions Made Over the Past Decade
5 2005 2007 2006 2008 2001 2002 2003 2004 2009 2010 2011 STRATEGIC DECISIONS MADE OVER THE PAST DECADE DEMONSTRATE OUR ABILITY TO FORESEE AND ADAPT TO CHANGE • Established our operating center in India • Created an activity-level cost database • Built and implemented the industry’s first known abili
Slide 6: Strong Results Despite the Macroeconomic Downturn
6 $150 $250 $350 $450 $550 $650 2007 2008 2009 2010 LTM** Gross Collections Adjusted EBITDA AS A RESULT, WE HAVE GENERATED STRONG RESULTS DESPITE THE MACROECONOMIC DOWNTURN ($ millions) * Adjusted EBITDA is a non-GAAP number. The Company considers Adjusted EBITDA to be a meaningful indicator of oper
Slide 7: Our Consumers Have Shown That They Are Resilient
7 Metric Recent trend • Payer rates • Upward • Average payment size • Stable • Payment style • More payment plans • Broken payer rates • Mild improvement • Settlement rates • Stable OUR CONSUMERS HAVE SHOWN THAT THEY ARE RESILIENT
Slide 8: Payer Rates Have Actually Increased Over the Past Few Years
8 PAYER RATES HAVE ACTUALLY INCREASED OVER THE PAST FEW YEARS Overall payer rate for all active inventory 2008 0.8% 0.9% 1.0% 1.1% 1.2% 1.3% 1.4% 1.5% 1.6% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 2011
Slide 9: Fundamentally Changed the Cost Structure Over Four Years
9 An 1110 basis point reduction in cost-to- collect translated into $43 million in cost savings in H1 2011 51.5 50.2 47.6 43.7 40.4 2007 2008 2009 2010 H1 2011 WE HAVE FUNDAMENTALLY CHANGED THE COST STRUCTURE OF THE COMPANY OVER THE PAST FOUR YEARS Overall Cost-to-Collect (%)
Slide 10: India Center Expected to Produce Half of 2011 Call Center Collections
10 LED BY OUR INDIA CENTER, WHICH IS EXPECTED TO PRODUCE HALF OF ALL 2011 CALL CENTER COLLECTIONS Collections from all Call Centers Percent of Total: 10% 19% 30% 44% 50% 2007 2008 2009 2010 2011E India U.S. $126 $157 $186 $268 ~$340 ($ millions)
Slide 11: Maintaining Total Cost Per Employee Despite Wage Inflation
11 DESPITE LOCAL WAGE INFLATION, WE HAVE BEEN ABLE TO MAINTAIN OUR TOTAL COST PER EMPLOYEE * Cost per FTE includes all India site costs Monthly Cost per Account Manager (FTE)* ($) $1,760 $ 1,590 $1,910 $1,680 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 2007 2008 2009 2010
Slide 12: Building a Substantial Reservoir for the Future
12 WE CONTINUE TO BUILD A SUBSTANTIAL RESERVOIR FOR THE FUTURE Annual Estimated Remaining Gross Collection (ERC) and Total Debt ($ millions, at end of period) $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2006 2007 2008 2009 2010 Q2 2011 ERC Total Debt
Slide 13: Current Estimate of Remaining Collections Is Conservative
13 WE BELIEVE OUR CURRENT ESTIMATE OF REMAINING COLLECTIONS IS CONSERVATIVE GIVEN OUR HISTORY Cumulative collections (initial expectation vs. actual) ($ millions, March 01 – June 11) Initial projections $- $250 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500 $2,750 $3,000 $3,250 $3,500 Ac
Slide 14: Ability to Increase Purchases Not Limited to Asset Class
14 OUR ABILITY TO INCREASE PURCHASES IS A RESULT OF NOT BEING LIMITED TO A PARTICULAR ASSET CLASS OR AGE OF RECEIVABLE Historical Purchase Mix by Year, 2011 Estimate ($ millions) $0 $50 $100 $150 $200 $250 $300 $350 $400 2005 2006 2007 2008 2009 2010 2011E Fresh Credit Card Older Credit Card Telecom
Slide 15: Business Model Provides the Consumer With Time to Recover
15 OUR BUSINESS MODEL IS CRITICALLY IMPORTANT, AS IT PROVIDES THE CONSUMER WITH TIME TO RECOVER Timeframe Process and relationship with consumers Outcome • Charge-off threshold extends a maximum of 6 months Transactional • Attempt immediate resolution during delinquency cycle (days 30 – 180) • Consu
Slide 16: Long-Term Model Has Helped More Than Two Million Consumers
16 OUR LONG-TERM MODEL HAS ALLOWED MORE THAN TWO MILLION CONSUMERS TO MOVE TOWARD FINANCIAL RECOVERY C onsumers with whom we have partnered to retire their debt (cumul ative) - 500,000 1,000,000 1,500,000 2,000,000
Slide 17: Consumer Bill of Rights
17 WE HAVE TAKEN A LEADERSHIP STANCE BY OUTLINING OUR CORE PRINCIPLES IN AN INDUSTRY-FIRST CONSUMER BILL OF RIGHTS • Clearly states what our consumers should expect during the collection process • Gives consumers concrete assurances about our conduct – No interest once payments are established, if m
Slide 18: Long-Term Profitability Driven by Three Key Areas
18 WE BELIEVE LONG-TERM PROFITABILITY IN THIS INDUSTRY WILL BE DRIVEN BY EXCELLENCE IN THREE KEY AREAS Consumer- level underwriting Superior collection approach Low-cost collection platform
Slide 19: Since 2000, 95% of Portfolio Purchases Have Been Profitable
19 Since 2000, 95% of our portfolio purchases have been profitable OUR STRONG PORTFOLIO PURCHASING TRACK RECORD IS DRIVEN BY AN UNDERWRITING MODEL FOCUSED ON INDIVIDUAL CONSUMERS Deal Accuracy Since 2000 Total purchase transactions Total profitable deals (39) Principal not fully recovered (Count bas
Slide 20: Purchasing Accuracy Outperforms Peers
20 PURCHASING ACCURACY AND OUR ANALYTIC OPERATING MODEL HAVE LED US TO CONSISTENTLY OUTPERFORM OUR PEERS Cumulative Actual Collection Multiples by Vintage Year as of June 30, 2011 (Total Collections / Purchase Price) Source: SEC Filings, Encore Capital Group Inc. 0.00x 0.50x 1.00x 1.50x 2.00x 2.50x
Slide 21: Building Upon Prior Successes With Strategic Initiatives
21 1. Diversify our legal platform 2. Capture incremental value through increased offshore activities 3. Develop new insights about our consumers WE ARE IN THE PROCESS OF BUILDING UPON OUR PRIOR SUCCESSES WITH POWERFUL STRATEGIC INITIATIVES Drive a meaningful portion of our legal collections through
Slide 22: Insourcing of Legal Will Take Time to Contribute
22 IT WILL TAKE SOME TIME BEFORE THE INSOURCING OF LEGAL CONTRIBUTES TO THE BOTTOM LINE Number of states EoY headcount 120-140 225-250 350-375 450-500 Placements, Collections (#, $ millions) $3 $18 $54 $104 $0 $20 $40 $60 $80 $100 $120
Slide 23: Addressing Growing Population of Spanish-Speaking Consumers
23 Spanish Account Inventory (000s) WE ARE ALSO ADDRESSING OUR GROWING POPULATION OF SPANISH-SPEAKING CONSUMERS Our presence in San Diego and Phoenix provides us with a natural hiring pool, but hiring cannot keep pace with inventory growth US-based Spanish servicing is challenging because of labor a
Slide 24: Center of Excellence for Financially Distressed Consumers
24 A new demographic segment has emerged It has unique features, is growing, and has needs that are only marginally served by existing business models FINALLY, WE ARE CREATING A CENTER OF EXCELLENCE DEDICATED TO UNDERSTANDING FINANCIALLY DISTRESSED CONSUMERS Unique consumer demographics Focus on bro
Slide 25: Summary
25 SUMMARY • Investments made over the past few years have driven significant improvements in collections, cash flow and earnings • Difficult regulatory environment being managed proactively • Expanding presence in India, combined with new strategic initiatives, are expected to continue increasing c
Slide 26: Appendix
APPENDIX
Slide 27: Appendix A: Cumulative Collections by Portfolio Vintage
27 APPENDIX A: CUMULATIVE COLLECTIONS BY PORTFOLIO VINTAGE Cumulative Collections through June 30, 2011 (000’s) Year of Purchase Purchase Price <2005 2005 2006 2007 2008 2009 2010 2011 Total CCM <2005 $385,478 $749,791 $224,620 $164,211 $85,333 $45,893 $27,708 $19,986 $8,479 $1,326,021 3.4 2005 192,
Slide 28: Appendix B: Reconciliation of Adjusted EBITDA
28 APPENDIX B: RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In Thousands) Three Months Ended Note: The periods 3/31/07 through 12/31/08 have been adjusted to reflect the retrospective application of ASC 470-20 3/31/07 6/30/07 9/30/07 12/31/07 3/3
Encore Capital Group — JMP Securities Financial Services and Real Estate Conference 2011 on 6ix