Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q4 2013 Earnings Presentation
39 slides from Encore Capital's earnings presentation, Feb 25, 2014
Slide 1: Encore Capital Group, Inc. Q4 2013 Earnings Call
Exhibit 99.1 Encore Capital Group, Inc. Q4 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 Record Quarterly Earnings
ENCORE DELIVERED RECORD QUARTERLY EARNINGS GAAP EPS* Economic EPS** Collections $351 million $0.87 $1.05 Adjusted EBITDA** GAAP Net Income* Economic Net Income** $206 million $24 $28 Cost to Collect*** million million 42.1% Estimated Remaining Collections of $4.0 billion * From continuing operations
Slide 4: And Record Full-Year 2013 Results
…AND RECORD FULL-YEAR 2013 RESULTS GAAP EPS* Economic EPS** Collections $1.28 billion $2.94 $3.86 Adjusted EBITDA** GAAP Net Income* Economic Net Income** $784 million $77 $99 Cost to Collect*** million million 39.1% * From continuing operations attributable to Encore ** Please refer to Appendix for
Slide 5: Strategic Acquisitions to Drive Growth and Increase Optionality
WE CONTINUE TO MAKE STRATEGIC ACQUISITIONS TO DRIVE GROWTH AND INCREASE OPTIONALITY Refinancia Marlin Financial Services Grove Capital Management Leader in Colombian and Peruvian NPL Provides litigation capabilities to Market leader in bankruptcy market markets Cabot Credit Management individual vol
Slide 6: Focused on Delivering Top Quartile Returns
WE REMAIN FOCUSED ON DELIVERING TOP QUARTILE RETURNS 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 Model Consumer Specialized call Sus
Slide 7: Our Focus on TSR Drives Our Growth Strategy
OUR FOCUS ON TSR DRIVES OUR GROWTH STRATEGY Grow our core business Diversify into new asset Geographic expansion and our subsidiaries classes Domestic core business Cabot - 2013 - and Marlin - 2014 Propel - 2012 (UK) EAF - 2012 Refinancia (Credit cards, point- Grove (UK) - 2014 of-purchase guarantee
Slide 8: Closed Acquisition of 51% Interest in Refinancia
IN LATE Q4, WE CLOSED THE ACQUISITION OF A 51% INTEREST IN REFINANCIA, EXPANDING OUR PRESENCE TO COLOMBIA AND PERU With 1,000 employees, Refinancia is a leading buyer of non-performing loans in: 2013 Capital 2013 Refinancia 2013 Capital 2013 Refinancia Deployed* Market Share** Deployed* Market Share
Slide 9: Refinancia Is Encore's Entry into Latin American Markets
REFINANCIA IS ENCORE’S ENTRY INTO THE LATIN AMERICAN MARKETS Market Business Opportunities Niche Description NPL portfolio purchase, servicing, Improvements in call center Individuals with and collections (Colombia, Peru) default in their operations technology NPL portfolio servicing and credit hist
Slide 10: Agreed to Acquire a 68% Interest in Grove Capital
WE HAVE AGREED TO ACQUIRE A 68% INTEREST IN GROVE CAPITAL Grove specializes in the purchasing and servicing of insolvencies, consisting primarily of individual voluntary arrangements (“IVAs”) and bankruptcy receivables in the UK Capital Deployment IVAs Grove Strategy Roughly equivalent to a chapter
Slide 11: Cabot Acquired Marlin Financial Group
EARLIER THIS MONTH CABOT ACQUIRED MARLIN FINANCIAL GROUP Marlin Financial Group is a UK debt buyer with a focus on litigation Company Transaction Financing Status Portfolio Rationale To date, portfolio Expected ERC lift Fully financed by Cabot Cabot just closed the purchases have totaled attributed
Slide 12: Marlin Enhances Encore's UK Market Position
MARLIN MEANINGFULLY ENHANCES ENCORE’S UK MARKET POSITION Increases Encore's exposure to the high-growth UK market Creates the UK market leader by ERC Strong relationships with key vendor banks make Cabot+Marlin well-placed to increasingly become the purchaser of choice Cabot+Marlin can leverage the
Slide 13: Significant Geographic Diversification
WITH OUR GROWTH HAS COME SIGNIFICANT GEOGRAPHIC DIVERSIFICATION Call Center Call Center Site Cabot HQ / Call Site Dublin, Ireland Center Sites St Cloud, MN West Malling, UK Call Center Site Marlin Stratford-upon-Avon, UK Warren, MI Worthing, UK Headquarters / Call Center Site Call Center Site Tampa,
Slide 14: Confidence in Execution: Asset Acceptance Performance
WE ARE CONFIDENT IN OUR ABILITY TO EXECUTE ON THE TRANSACTIONS BECAUSE OF OUR STRONG PERFORMANCE ON OUR RECENT ACQUISITIONS Q4 Q1 Q2 Q3 Asset Acceptance Performance 2013 2014 2014 2014 $200 $180 $160 $140 Support Function Rationalization & Technology Integration $120 IL Acct Placement $100 and Conve
Slide 15: Confidence in Execution: Cabot and India Operations Launch
WE ARE CONFIDENT IN OUR ABILITY TO EXECUTE ON THE TRANSACTIONS BECAUSE OF OUR STRONG PERFORMANCE ON OUR RECENT ACQUISITIONS (CONT’D) Cabot CABOT INDIA OPERATIONS LAUNCH 12/15 1/1 1/15 2/1 2/15 Cumulative (July – December 2013) On the job training Adjusted EBITDA* $100.4 million Inventory identificat
Slide 16: CFPB Rulemaking Overview
CFPB RULEMAKING OVERVIEW Small Business Notice of Advance Notice of Regulatory Proposed Final Proposed Rulemaking Enforcement Effective Date Rulemaking Rulemaking (ANPR) Fairness Act (NPR) (SBREFA) Panel Comments due Spring – Summer Summer Late 2014 – 30 days – 2/28/14 2014 2014 Mid 2015 1 year Enco
Slide 17: Detailed Financial Discussion
Detailed Financial Discussion 17
Slide 18: Growth in Deployments Led by Cabot and Asset Acceptance
GROWTH IN DEPLOYMENTS WAS LED BY CABOT CREDIT MANAGEMENT AND ASSET ACCEPTANCE RECEIVABLE PORTFOLIO DEPLOYMENTS PROPEL DEPLOYMENTS $M $M Texas Other states 700 80 700 618 600 61 500 60 423 45** 400 40 300 231 27 21 200 130 154 20 105 9 11 12 100 47 59 40 59 0 0 Q1 2012Q2 2012Q3 2012Q4 2012Q1 2013Q2 2
Slide 19: AACC and Cabot Acquisitions Accelerated 2013 Collections
THE AACC AND CABOT ACQUISITIONS ACCELERATED 2013 COLLECTIONS Core Collections - Collection Sites - Legal Collections $M 2012: $948 2013: $1,280 $M - Collection Agencies - Cabot 400 400 380 351 67 350 67 300 40 300 27 26 21 270 278 14 18 11 13 250 241 246 200 122 154 231 230 134 155 115 111 110 113 2
Slide 20: Strong Collections Led to Solid Revenue Growth
STRONG COLLECTIONS LED TO SOLID REVENUE GROWTH Revenue From Receivable Portfolio Collections $M 2012: $545 2013: $745 250 225 227 200 152 150 139 141 140 141 126 100 50 0 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 PROPRIETARY 20
Slide 21: Cost to Collect Reflects AACC's and Cabot's Operations
ENCORE’S COST TO COLLECT FULLY REFLECTS AACC’S AND CABOT’S OPERATIONS Q4 2013 Q4 2012 Overall Cost to Collect* Channel CTC CTC Cabot 26.7% 24.8% 50% Legal 36.8% 43.2% Core sites 8.9% 7.3% 43% 42% 40% 40% 40% 39% 38% 38% 36% 30% Q1 2012Q2 2012Q3 2012Q4 2012Q1 2013Q2 2013Q3 2013Q4 2013 * Cost to Colle
Slide 22: 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% 150% 30% 100% 20% 10% 50% 0% 0% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2011 2011 2012 2012 2012 2012
Slide 23: Collections Growth and Cost Improvements Led to Improved Cash Flows
COLLECTIONS GROWTH AND COST IMPROVEMENTS LED TO IMPROVED CASH FLOWS Adjusted EBITDA* $M 2012: $577 2013: $784 250 231 206 200 173 174 148 151 150 144 135 100 50 0 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 * Please refer to Appendix for reconciliation of Adjusted EBITDA to GAAP
Slide 24: Cabot and AACC Transactions Drove Strong Growth in ERC
THE CABOT AND AACC TRANSACTIONS RESULTED IN STRONG GROWTH IN ERC Estimated Remaining Collections $M 4,022 4,000 1,503 3,000 2,741 961 2,000 3,990 2,519 1,000 1,983 1,890 1,967 1,911 1,724 1,780 0 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Encore ERC Asset Acceptance ERC Cabot ER
Slide 25: Cabot Contributed $0.36 to 2013 Economic EPS
CABOT CONTRIBUTED $0.36 TO ENCORE’S 2013 ECONOMIC EPS In 000’s except per share amounts Janus Encore Europe Holdings EEH Consolidated Revenue / other income $95,491 - $95,491 Total Expenses (48,890) - (48,890) EBITDA 46,601 - 46,601 Non-PEC Interest Expense (26,265) - (26,265) PEC Interest Expense (
Slide 26: Propel Continues to Grow and Contribute to Encore
PROPEL CONTINUES TO GROW AND CONTRIBUTE TO ENCORE Over $145 million of Now operating in 10 $35M competitor capital deployed in states acquisition 2013 Capital Deployed Total Revenue Operating Income $M $M $M 70 6 2 60 50 4 40 1 30 20 2 10 0 0 0 Q1 Q2 Q3 Q4* Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 *Includes $29 mill
Slide 27: Q4 Adjusted EPS Set a Record of $1.05
ENCORE’S Q4 ADJUSTED EPS SET A RECORD OF $1.05 PER FULLY DILUTED SHARE $1.05 $0.10 $1.01 $0.04 $0.87 Net income per diluted share Net non -cash interest and Acquisition related fees, net of Adjusted net income from Adjusted net income from from continuing operations issuance cost amortization, tax c
Slide 28: 2013 Adjusted EPS Set a Record of $3.86
ENCORE’S 2013 ADJUSTED EPS SET A RECORD OF $3.86 PER FULLY DILUTED ECONOMIC SHARE $3.77 $3.86 $0.71 $0.12 $2.94 Net income per diluted share Net non-cash interest and Acquisition related fees, net Adjusted net income from Adjusted net income from from continuing operations issuance cost amortization
Slide 29: Key Amendments to Core Credit Facility
WE MADE SEVERAL KEY AMENDMENTS TO OUR CORE CREDIT FACILITY TO SUPPORT ENCORE’S GROWTH Credit Facility Summary Key Factors Previous Current Facility Size $754.5M $846.3M Transaction Limit $50M (Single) / $75 (Aggregate) $75M (Single) / $150 (Aggregate) Maturity 2017 2019 Accordion $162.5M $250M Prope
Slide 30: 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 31: Appendix
= encore Appendix 31
Slide 32: 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 33: Reconciliation of Adjusted/Economic Net Income and EPS (Q4)
RECONCILIATION OF ADJUSTED/ECONOMIC NET INCOME AND ADJUSTED/ECONOMIC EPS Reconciliation of Adjusted Net Income and Adjusted EPS to GAAP EPS (Unaudited, in thousands, except per share amounts), Three Months Ended December 31, 2013 2012 Per Diluted Per Diluted Per Diluted Per Diluted $ Share – Share –
Slide 34: Reconciliation of Adjusted/Economic Net Income and EPS (Full Year)
RECONCILIATION OF ADJUSTED/ECONOMIC NET INCOME AND ADJUSTED/ECONOMIC EPS Reconciliation of Adjusted Net Income and Adjusted EPS to GAAP EPS (Unaudited, in thousands, except per share amounts), Full Year 2013 2012 Per Diluted Per Diluted Per Diluted Per Diluted $ Share – Share – $ Share – Share – Acc
Slide 35: 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 36: 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 3/31/12 6/30/12 9/30/12 12/31/12 3/31/13 6/30/13 9/30/13 12/31/13 GAAP total operating expenses, 91,394 102,809 103,621 103,872 105,872 126,238 174,
Slide 37: Reconciliation of Adjusted EBITDA - Cabot
RECONCILIATION OF ADJUSTED EBITDA - CABOT Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In Thousands) Six Months Ended December 31, 2013 GAAP net income attributable to Encore Europe Holdings s.a.r.l. 9,038 Loss from noncontrolling interest (1,559) GAAP net income 7,479 Adjustment
Slide 38: Reconciliation of Adjusted Operating Cost - Cabot
RECONCILIATION OF ADJUSTED OPERATING COST - CABOT Reconciliation of Adjusted Operating Cost to GAAP Operating Cost (Unaudited, In Thousands) Six Months Ended December 31, 2013 GAAP total operating expenses, as reported $48,890 Adjustments: Operating expense related to other operating segments (11,87
Slide 39: Encore Capital Group, Inc. Q4 2013 Earnings Call
Encore Capital Group, Inc. Q4 2013 EARNINGS CALL