Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — JMP Securities Financial Services and Real Estate Conference 2012
31 slides from Encore Capital's conference presentation, Sep 13, 2012
Slide 1: Encore Capital Group, Inc. – JMP Securities Conference
Exhibit 99.1 ENCORE CAPITAL GROUP, INC. JMP Securities Financial Services and Real Estate Conference September 13, 2012
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 Growing Company with Sophisticated Operations and Deep Consumer Expertise
ENCORE IS A GROWING COMPANY WITH SOPHISTICATED OPERATIONS AND DEEP CONSUMER EXPERTISE 1 in 9 American consumers have accounts with us 2.6 million consumers have satisfied their obligations $850 million collected in the last twelve months $2 billion in estimated remaining collections 30% Adjusted EBI
Slide 4: Our Success Is Driven by Our Core Competencies
OUR SUCCESS IS DRIVEN BY OUR CORE COMPETENCIES ANALYTIC STRENGTH Marketing analytics Legal collections Consumer Credit Research Institute ENCORE’S KEY CONSUMER COMPETITIVE INTELLIGENCE ADVANTAGES International Portfolio valuation operations and purchasing Account Operational Manager modeling experti
Slide 5: We Have Significantly Increased Operating Cash Flow and Cash Collections
WE HAVE SIGNIFICANTLY INCREASED OPERATING CASH FLOW (ADJUSTED EBITDA) AND CASH COLLECTIONS Adjusted EBITDA* and gross collections by year ($M) 850 Gross collections 750 Adjusted EBITDA 650 25% CAGR 550 450 30% 350 CAGR 250 150 2007 2008 2009 2010 2011 Q2 2012 TTM * Adjusted EBITDA is a non-GAAP numb
Slide 6: We Continue to Build a Substantial Reservoir for the Future
AND WE CONTINUE TO BUILD A SUBSTANTIAL RESERVOIR FOR THE FUTURE Annual estimated remaining gross collection (ERC) and total debt ($M, End of period) 2,500 ERC 1,983 2,000 Total Debt * 1,571 1,500 1,000 574 500 389 0 2006 2007 2008 2009 2010 2011 Q2 2012 * Total debt excludes Propel credit facility P
Slide 7: 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 June 30, 2012 (Total collections / Purchase price) ECPG 2.50x Peer 1 Peer 2 2.00x 1.50x 1.00x 0.50x 0.00x 2005 2006 2007 2008 2009 2010 2011 2012 Sour
Slide 8: Dramatic Improvement in Cost to Collect Has Given Us a Key Competitive Advantage
AND THE DRAMATIC IMPROVEMENT IN OUR COST TO COLLECT HAS GIVEN US A KEY COMPETITIVE ADVANTAGE Overall cost to collect (%) 51.5 50.2 47.6 43.7 42.2 41.1 39.5 2007 2008 2009 2010 2011 Q2 2012 Q2 2012 TTM PROPRIETARY 8
Slide 9: Our Operating Model and Cost Advantages Allow Us to Remain Profitable When Others Cannot
OUR OPERATING MODEL AND COST ADVANTAGES ALLOW US TO REMAIN PROFITABLE WHEN OTHERS CANNOT Interplay of multiples with the costs of debt and collection (Unlevered IRR) Cost of debt: Cost of debt: Cost of debt: 4% 7% 10% Cost to collect Cost to collect Cost to collect 40% 45% 50% 40% 45% 50% 40% 45% 50
Slide 10: Building a Platform That Encourages a Different Kind of Relationship with Consumers
OPERATIONALLY, WE'RE BUILDING A PLATFORM THAT ENCOURAGES A DIFFERENT KIND OF RELATIONSHIP WITH OUR CONSUMERS Addressing • Acknowledging the limitations of our consumers’ debt cycles household balance sheets • Living the Consumer Bill of Rights Making focused • Creating specialized work groups invest
Slide 11: Significant Increase in 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) 44 45 37 25 17 2008 2009 2010 2011 2012(E) PROPRIETARY 11
Slide 12: Specialized Collection Teams to Optimize Repayment Rates and Consumer Experience
WE’VE ESTABLISHED SPECIALIZED COLLECTION TEAMS TO OPTIMIZE REPAYMENT RATES AND CONSUMER EXPERIENCE Increasing call center specialization (Number of distinct teams) 15 17 11 10 Increasing work group specialization and control 2009 2010 2011 2012(E) allows for: Discounts that are better customized to
Slide 13: Call Center Productivity Has Steadily Improved Through Specialization
OUR CALL CENTER PRODUCTIVITY HAS STEADILY IMPROVED THROUGH SPECIALIZATION Productivity of Phoenix Call Center (Dollars collected per paid hour) 497 422 359 252 207 148 2007 2008 2009 2010 2011 H1 2012 PROPRIETARY 13
Slide 14: Understanding Financially Stressed Consumer Behavior Is at the Heart of Our Evolution
UNDERSTANDING FINANCIALLY STRESSED CONSUMER BEHAVIOR IS AT THE HEART OF OUR COMPANY’S EVOLUTION 2011 2005 2001 1999 Predictive modeling Behavioral science Reporting Statistical analysis and optimization field studies and alerts and forecasting Analytics • Basic business • Valuation based on • First-
Slide 15: Our Approach to Asset Valuation
THIS IS CLEARLY SEEN IN OUR APPROACH TO ASSET VALUATION High willingness Low willingness High capability High ability • Strong partnership and Encore’s individual • Enforce legal contract recovery opportunities through formal channels underwriting approach to portfolio valuation accommodates our spe
Slide 16: We Maximize Our Impact by Asking Important Questions About Consumers
WE MAXIMIZE OUR IMPACT BY ASKING IMPORTANT QUESTIONS ABOUT CONSUMERS AND THEIR CIRCUMSTANCES How do consumers Conduct research to prioritize their understand financially spending and stressed consumers’ saving options? financial decision-making When do we nudge Promote financial literacy consumers u
Slide 17: Collaborating with Leading Institutions to Augment Our Scientific Expertise
WE ARE COLLABORATING WITH LEADING INSTITUTIONS TO AUGMENT OUR SCIENTIFIC EXPERTISE Household finance Microeconomic analysis of social and economic challenges Public policy centers Behavioral decision Behavioral Zinman theory Economics Karlan Risk and Credit uncertainty availability Fox Governmental
Slide 18: Exploring Ways to Leverage Our Core Competencies
AS WE LOOK TO THE FUTURE, WE ARE EXPLORING WAYS TO LEVERAGE OUR CORE COMPETENCIES Secured Cover Expand Outsourcing different along value services loans type of debt system Tax Contingency liens Auto collections First party debt Mortgage collection debt services Unsecured Purchase Expand along the Pe
Slide 19: Last Quarter, We Made Three Key Strategic Moves
LAST QUARTER, WE MADE THREE KEY STRATEGIC MOVES Encore’s largest Divestiture of our Acquisition of portfolio bankruptcy Propel Financial acquisition servicing subsidiary Services Our analytical and We transitioned We identified and operating Ascension Capital pursued a strong advantages Group to a c
Slide 20: Well Positioned to Provide a Solution for Competitors Who Exit the Market
ENCORE IS WELL POSITIONED TO PROVIDE A SOLUTION FOR COMPETITORS WHO EXIT THE MARKET Protection from the Careful consumer Practice makes “winner’s curse” segmentation perfect Our operational Industry-leading Significant history advantages insulate us models used to of acquiring assets Acquisition aga
Slide 21: Confidence Tied to Successful Completion of One of the Industry's Few Large Deals
OUR CONFIDENCE IS TIED TO THE SUCCESSFUL COMPLETION OF ONE OF THE INDUSTRY’S FEW DEALS OF THIS SIZE $90M portfolio purchase in 2005, cumulative collections ($M) Results to date: 250 $232M Actual collections 200 Estimated collections Initial expectations: 150 $199M 100 50 Jun-05 Jun-06 Jun-07 Jun- 08
Slide 22: We Have Transitioned Our Bankruptcy Business to a Better-Suited Owner
WE HAVE TRANSITIONED OUR BANKRUPTCY BUSINESS TO A BETTER-SUITED OWNER Buyer has focused IT and ACG has not Business bankruptcy been, and requires a expertise, and would not Bankruptcy significant currently serves be, material volumes have technology large, financial to Encore declined investment ins
Slide 23: We Studied Many Markets Before Finding an Opportunity That Satisfied Our Acquisition Criteria
WE STUDIED MANY MARKETS AND GEOGRAPHIES BEFORE FINDING AN OPPORTUNITY THAT SATISFIED OUR ACQUISITION CRITERIA Leverage • Consumer intelligence platform focused on Encore’s helping financially stressed individuals strengths • Industry-leading asset valuation methodology • Low-cost operational platfor
Slide 24: Growing Our Portfolio While Maintaining an Exceptionally Low Risk Profile
WHICH HAS ALLOWED US TO GROW OUR PORTFOLIO WHILE MAINTAINING AN EXCEPTIONALLY LOW RISK PROFILE Propel originations Propel portfolio size ($M) ($M) CAGR CAGR 55% 67% 68 121 53 99 35 72 18 26 2008 2009 2010 2011 2008 2009 2010 2011 Residential portfolio characteristics • $6,000 average balance • $180,
Slide 25: Competitive Landscape Is Favorable and the Texas Market Is Large and Untapped
THE COMPETITIVE LANDSCAPE IS FAVORABLE AND THE TEXAS MARKET IS LARGE AND RELATIVELY UNTAPPED 2011 market penetration Propel market share (%) (Originations, %) All other 37 competitors Funded nd 2 largest 18 tax liens 10 competitor Largest 82 16 competitor Unserved Propel Financial market 37 Services
Slide 26: The Business Models Are Very Similar
THE BUSINESS MODELS ARE VERY SIMILAR, AS BOTH PROVIDE ESSENTIAL SERVICES FOR CONSUMERS AND CREDITORS Financial Local Tax Institutions Authorities Payment for Payment for residential consumer debt and commercial obligations property tax obligations Leading provider of debt management and recovery sol
Slide 27: Our Balance Sheet Remains Strong
OUR BALANCE SHEET REMAINS STRONG Covenant analysis ($M) 2010 2011 Q2 2012 Cash flow leverage ratio Debt 385.3 389.0 702.3 Trailing 4-quarter Adjusted EBITDA † 345.0 444.9 490.9 Debt/Adjusted EBITDA (maximum 2.0x) 1.12 0.87 1.43 Minimum net worth Excess room 95.1 133.5 151.6 Interest coverage ratio E
Slide 28: Encore's Long-Term Prospects Continue to Be Strong
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 • Significant purchases in the second quarter will drive growth throughout 2012 and into 2013 • Working collaboratively with legislators an
Slide 29: Endnote
ENDNOTE † 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 throug
Slide 30: Appendix
APPENDIX — ore PROPRIETARY
Slide 31: Appendix A: Reconciliation of Adjusted EBITDA
APPENDIX A: RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In Thousands) Three Months Ended 3/31/07 6/30/07 9/30/07 12/31/07 3/31/08 6/30/08 9/30/08 12/31/08 3/31/09 6/30/09 9/30/09 12/31/09 GAAP net income, as reported 4,991 (1,515) 4,568 4,187 6,
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