Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Investor Presentation (March 2011)
25 slides from Encore Capital's investor presentation, Mar 15, 2011
Slide 1: Encore Capital Group Investor Presentation
Exhibit 99.1 Encore Capital Group Investor Presentation March 15, 2011
Slide 2: Cautionary Note About Forward-Looking Statements
1 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
2 INVESTMENT HIGHLIGHTS • Favorable supply and demand dynamics have existed since 2008, with only a few credible, large buyers • Strong performance is expected to continue • Operational and financial leverage is increasing, largely due to our successful operating center in India • Analytic insights
Slide 4: Encore is a leading player in the consumer debt buying and recovery industry
3 95% • Call Center / Technology Site • Call Center Site • Call Center Site • Headquarters • Call Center Site ENCORE IS A LEADING PLAYER IN THE CONSUMER DEBT BUYING AND RECOVERY INDUSTRY Revenue Composition As of December 31, 2010 Global Capabilities 5% Debt Purchasing & Collections Bankruptcy Servi
Slide 5: Strategic decisions made over the past decade demonstrate our ability to foresee and adapt
4 2001 2003 2005 2007 2011 2009 2002 2004 2006 2008 2010 STRATEGIC DECISIONS MADE OVER THE PAST DECADE DEMONSTRATE OUR ABILITY TO FORESEE AND ADAPT TO CHANGES • Hired first statisticians • Created first and second generation forecasting models • Created 1 generation operational models An Emerging Ma
Slide 6: These decisions are driving strong results
5 2010 2009 YOY Growth Annual Variance $604,609 $116,817 24% $487,792 Collections $381,308 $64,889 21% $316,419 Revenue $346,656 $82,051 31% $264,605 Adjusted EBITDA* $361,957 $105,325 41% $256,632 Purchases $1.95 $0.58 42% $1.37 EPS ($000s, except EPS and ratios) THESE DECISIONS ARE DRIVING STRONG
Slide 7: We have significantly increased both operating cash flow and cash collections
6 WE HAVE SIGNIFICANTLY INCREASED BOTH OPERATING CASH FLOW (ADJUSTED EBITDA) AND CASH COLLECTIONS Adjusted EBITDA* and Gross Collections by quarter ($ millions) * Adjusted EBITDA is a non-GAAP number. The Company considers Adjusted EBITDA to be a meaningful indicator of operating performance and use
Slide 8: Operating cash flow improving primarily because of our India team
7 OUR OPERATING CASH FLOW IS IMPROVING PRIMARILY BECAUSE OF OUR INDIA TEAM, WHICH IS PRODUCING HALF OF CALL CENTER COLLECTIONS Collections from all call centers ($ millions) $126 $157 $186 $268 Percent of Total: 10% 19% 30% 44% 2007 2008 2009 2010 India U.S.
Slide 9: Increased India contribution has reduced cost-to-collect by 58%
8 THE INCREASED CONTRIBUTION FROM INDIA, HAS REDUCED OUR INTERNAL, DIRECT COST-TO-COLLECT BY 58% OVER THE LAST 4 YEARS Variable cost to collect * * Represents salaries, variable compensation and employee benefits 51.5 50.2 47.6 43.7 2007 2008 2009 2010 Global Call Centers (LHS) India Call Center (LH
Slide 10: Trend should continue as India employees are still in their learning curves
9 AND THE TREND SHOULD CONTINUE, AS A SIGNIFICANT PORTION OF OUR INDIA EMPLOYEES ARE STILL IN THEIR LEARNING CURVES Encore India Account Manager headcount and indicative cash average Headcount (number)*; Cash average (indicative) *Headcount data as of 12/31/2010 0-3 Months 4-6 Months 7-15 Months 15+
Slide 11: We are investing in the future through increased purchasing volumes
10 Full year purchases for 2008 - 2010 ($ millions) WE ARE INVESTING IN THE FUTURE THROUGH INCREASED PURCHASING VOLUMES $230.3 $362.0 $256.6 2008 2009 2010
Slide 12: Annual Estimated Remaining Gross Collection and Total Debt
11 Annual Estimated Remaining Gross Collection (ERC) and Total Debt ($ millions, at end of period) WHICH HAS MEANINGFULLY ENHANCED THE COMPANY’S EMBEDDED VALUE, WHILE MAINTAINING CONSERVATIVE RATIOS * CTC = Cost-to-Collect ** DTL = Deferred Tax Liability $758 Net Debt + DTL** Taxes (40% Rate) Gross
Slide 13: Our current estimate of remaining collections is conservative given our history
12 WE BELIEVE THAT OUR CURRENT ESTIMATE OF REMAINING COLLECTIONS IS CONSERVATIVE GIVEN OUR HISTORY $- $250 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500 $2,750 $3,000 $3,250 Cumulative collections (initial expectation vs. actual) ($ millions, December – December 10) Actual cash collecti
Slide 14: Market dynamics influence our approach to the business
13 MARKET DYNAMICS INFLUENCE OUR APPROACH TO THE BUSINESS Charge-offs remain elevated Consumer credit continues to experience losses at near record levels Supply more closely managed by the issuers Demand increasing, albeit slowly Few players with access to significant amounts of capital Continued e
Slide 15: Despite macroeconomic headwinds, our consumer's behavior remains consistent
14 DESPITE THE MACROECONOMIC HEADWINDS, OUR CONSUMER’S BEHAVIOR REMAINS CONSISTENT Metric Recent trend • Payer rates • Slightly upward • Average payment size • Stable • Single vs. multi-payers • More payment plans • Broken payer rates • Mild improvement • Settlement rates • Upward trend
Slide 16: We saw improvement in payer rates over the prior year
15 IN FACT, WE SAW IMPROVEMENT IN PAYER RATES OVER THE PRIOR YEAR THROUGHOUT 2010 Overall payer rate for all active inventory 2008 2009 2010
Slide 17: We understand our consumers are going through a difficult time
16 WE UNDERSTAND OUR CONSUMERS ARE GOING THROUGH A DIFFICULT TIME AND WE STRIVE TO IDENTIFY WAYS TO ENCOURAGE A DIALOGUE Operational practices Activity • Interest policy • Discounts • Outbound communication • Work segmentation • We do not charge interest during the course of payment plans to improve
Slide 18: These practices have allowed us to help millions of consumers
17 THESE PRACTICES HAVE ALLOWED US TO EFFECTIVELY HELP MILLIONS OF CONSUMERS Consumers with whom we have partnered to retire their debt (cumulative) - 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000
Slide 19: Our operational success is based upon four strategic priorities
18 OUR OPERATIONAL SUCCESS IS BASED UPON FOUR STRATEGIC PRIORITIES ENCORE’S STRATEGIC PILLARS ANALYTIC STRENGTH COST LEADERSHIP CONSUMER INTELLIGENCE PRINCIPLED INTENT
Slide 20: Analytic insights match collection approach to individual consumer's payment behavior
19 Offer significant discounts and plans that accommodate many small payments Focus on payment plans and opportunities to build longer relationships with consumers Hardship strategies Remind consumers of their obligation through legal communications Our attempts to contact or work with consumers are
Slide 21: Our analytic reach extends from pre-purchase throughout the ownership period
20 Core competency in understanding the payer behavior of distressed consumers Cross-channel coordination and optimization Consumer behavior research Market data and insight Portfolio valuation Pre-purchase model No effort Legal Outsourcing Legal effort model with Capability Call Centers Call effort
Slide 22: Superior to what can be acquired commercially
21 Collections lift over deciles, comparing Encore’s ability-to-pay model against both commercial scores and random servicing strategies Commercial score 1 Random servicing Commercial score 2 Encore AND IS SUPERIOR TO WHAT CAN BE ACQUIRED COMMERCIALLY
Slide 23: Consumer-centric focus enables us to deal with increasing regulatory activity
22 Proprietary software platforms allow the company to make changes as new regulations and laws emerge Sophisticated software and analytics platforms ensure that all data-driven activities are compliant Expanded legal and quality assurance teams partner with training department to keep account manag
Slide 24: Summary
23 SUMMARY • Strong performance is expected to continue • Operational and financial leverage is increasing, largely due to our successful operating center in India • Favorable supply and demand dynamics have existed since 2008, with only a few credible, large buyers • Analytic insights inform our va
Slide 25: Reconciliation of Adjusted EBITDA to GAAP Net Income
24 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 APPENDIX: RECONCILIATION OF ADJUSTED EBITDA 3/31/07 6/30/07 9/30/07 12/31/07 3/31/
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