Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — JMP Securities Financial Services & Real Estate Conference 2013
35 slides from Encore Capital's conference presentation, Oct 1, 2013
Slide 1: Encore Capital Group, Inc. – JMP Securities Financial Services & Real Estate Conference
Exhibit 99.1 ENCORE CAPITAL GROUP, INC. JMP SECURITIES FINANCIAL SERVICES & REAL ESTATE CONFERENCE October 1, 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 1 in 7 American consumers 2-3x have accounts with us Total Cash Collections 3.1 million
Slide 4: With a Strong Domestic and International Presence
WITH A STRONG DOMESTIC AND INTERNATIONAL PRESENCE Call Center Site Cabot HQ / Dublin, Ireland Call Center Sites Call Center Site St Cloud, MN West Malling, UK Stratford-upon-Avon, UK Call Center Site Warren, MI Headquarters / Call Center Site Call Center Site San Diego, CA Tampa, FL Call Center / Ca
Slide 5: Encore Provides a Principled and Essential Service
ENCORE PROVIDES A PRINCIPLED AND ESSENTIAL SERVICE PROPRIETARY 5
Slide 6: 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 7: Encore Has Delivered a Track Record of Strong, Sustainable Financial Results
ENCORE HAS DELIVERED A TRACK RECORD OF STRONG, SUSTAINABLE FINANCIAL RESULTS Cash Collections ($M) Cost to Collect 1 (%) Strong business fundamentals... Adjusted EBITDA2 ($M) Earnings Per Share3 ($) ...driving profitable growth 1. Cost to Collect is Adjusted Operating Expenses / Dollar Collected. Se
Slide 8: And Has Continued to Build Upon This Performance With Strong Results This Year
AND HAS CONTINUED TO BUILD UPON THIS PERFORMANCE WITH STRONG RESULTS THIS YEAR Year over year financial results 1. Cost to Collect is Adjusted Operating Expenses / Dollar Collected. See Reconciliation of Adjusted Operating Expenses to GAAP Total Operating Expenses at the end of this presentation. 2.
Slide 9: Encore Has Rapidly Gained Scale and Positioned Itself for Sustained Growth
ENCORE HAS RAPIDLY GAINED SCALE AND POSITIONED ITSELF FOR SUSTAINED GROWTH Estimated Remaining Collections in core receivables PROPRIETARY 9
Slide 10: This Scale Has Been Created by Market Leading Investments
THIS SCALE HAS BEEN CREATED BY MARKET LEADING INVESTMENTS Capital deployed in core receivables ($M) PROPRIETARY 10
Slide 11: Encore Has Delivered Industry Leading Total Shareholder Return Over the Past 5+ Years
ENCORE HAS DELIVERED INDUSTRY LEADING TOTAL SHAREHOLDER RETURN OVER THE PAST 5+ YEARS Total Shareholder Return (Dec. 2007- Aug. 2013) (%) PROPRIETARY 11
Slide 12: 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 13: 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 14: Consumer Level Portfolio Valuation Approach
...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 valuati
Slide 15: Our Effectiveness Has Improved Significantly Through Investments in Analytics
OUR EFFECTIVENESS HAS IMPROVED SIGNIFICANTLY THROUGH OUR INVESTMENTS IN ANALYTICS Improved liquidation in our call center channel 1 2 Indexed liquidation rate 120 +11% Impact of 11% improvement in liquidation (2008-2012) 111 110 • In 2012, we collected $442M through our call center channel 100 100 •
Slide 16: We Have the Industry Leading Cost Platform
WE HAVE THE INDUSTRY LEADING COST PLATFORM, DRIVEN BY CONTINUING OPERATIONAL IMPROVEMENTS 1 Overall Cost to Collect (%) Improving analytics Increased specialization in call centers Scaling Indian call center Internal Legal investments 1. Cost to Collect is Adjusted Operating Cost / Dollar Collected.
Slide 17: Efficient Capital Stewardship Is Critical to Encore's Success
EFFICIENT CAPITAL STEWARDSHIP IS CRITICAL TO ENCORE'S SUCCESS • Debt is our working capital – Capital deployment business which generates strong cash flows • Strong cash flow allows for TSR driving investments – Reinvest in wide range of receivables – Prudent investment in adjacencies to supplement
Slide 18: Strong Ability to Quickly Raise Capital Supported by Estimated Remaining Collections
WE HAVE A STRONG ABILITY TO QUICKLY RAISE CAPITAL WHICH IS SUPPORTED BY OUR ESTIMATED REMAINING COLLECTIONS Estimated Remaining Collections (ERC) vs. Net Debt 1. Includes revolver, term loan, senior, and net convertible debt less cash (excludes Propel debt) 2. Assumes liquidation cost to collect of
Slide 19: Our Current Estimate of Remaining Collections Is Conservative
WE BELIEVE THAT OUR CURRENT ESTIMATE OF REMAINING COLLECTIONS IS CONSERVATIVE Cumulative Collections - initial expectation vs. actual ($M) Actual Cash Collections Initial Projections PROPRIETARY 19
Slide 20: Ability to Raise Additional 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 to fund new opportunities... maximize flexibility for future growth Total debt availability ($M) Separate Propel • Propel facilities are in
Slide 21: Capital Deployment Strategy Focuses on Attractive and Sustainable 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 22: Deals and Initiatives That Align With Our Core Business
WE HAVE PURSUED DEALS AND INITIATIVESTHAT ALIGNWITHOUR 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 22
Slide 23: The Asset Acceptance Deal Is Well Aligned With Our Strategy
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 returns Allows us to be selective in purchases for the remainder of the year Able to leverage best practices across the two platforms to drive synerg
Slide 24: Strong 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) Results to date: Results to date: $238M $101M PROPRIETARY 24
Slide 25: Leverage Our Platform to Realize Synergy Value at AACC
WE BELIEVE WE CAN LEVERAGE OUR PLATFORM AND CAPABILITIES TO REALIZE SUBSTANTIAL SYNERGY VALUE AT AACC Source of value Expected Impact 1 Deeper consumer insight and analytics: CCM target More focused segmentation and targeting, of > 2.5x resulting in better collections 2 Lower cost structure: Leverag
Slide 26: Significant Progress Executing Our Plans for Propel
WE HAVE MADE SIGNIFICANT PROGRESS EXECUTING OUR PLANS FOR PROPEL Our plan What we've delivered 1 • 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 faci
Slide 27: Growth in Portfolio Size While Maintaining Low Risk Profile
RESULTING IN GROWTH IN THE SIZE OF OUR PORTFOLIO WHILE MAINTAINING AN EXCEPTIONALLY LOW RISK PROFILE Propel portfolio size Texas portfolio characteristics • $8,600 average balance • $227,000 average property value • 8-year term • 3.9% average LTV at origination • 6-year weighted average life • Less
Slide 28: 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 Cabot 1301 Specializes in higher balance, “semi-performing”
Slide 29: 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 30: Acquisition of Cabot Provides a Vehicle 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 closed in Q3 of 2013 Encore Adjusted EPS • Supports Encore's 15% long
Slide 31: 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 32: Appendix
APPENDIX — ecole PROPRIETARY
Slide 33: 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 3/31/07 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 34: Reconciliation of Adjusted EPS to GAAP EPS
RECONCILIATION OF ADJUSTED EPS TO GAAP EPS Six Months Ended June 30, 2013 2012 Per Diluted Per Diluted $ $ Share Share Net income from continuing operations 30,460 $1.24 37,096 $1.44 Adjustments: Convertible notes non-cash interest and issuance 1,000 $0.04 cost amortization, net of tax Acquisition r
Slide 35: Reconciliation of Adjusted Operating Expenses
RECONCILIATION OF ADJUSTED OPERATING EXPENSES Reconciliation of Adjusted Operating Cost to GAAP Operating Expenses (Unaudited, In Thousands) H1 H1 2007 2008 2009 2010 2011 2012 2012 2013 GAAP total operating expenses, as $201,849 $216,900 249,782 $269,952 $328,566 $401,696 $194,203 $232,110 reported
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