Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Investor Day (June 2014)
59 slides from Encore Capital's investor day presentation, Jun 5, 2014
Slide 1: Encore Capital Group, Inc. 2014 Investor Day
Encore Capital Group, Inc. 2014 Investor Day New York, NY June 5, 2014 Exhibit 99.1
Slide 2: Safe Harbor
PROPRIETARY SAFE HARBOR 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 expressions, constitute
Slide 3: Presenting Today
PROPRIETARY PRESENTING TODAY Ken Vecchione CEO, Encore Capital Paul Grinberg CFO, Encore Capital Ken Stannard CEO, Cabot Credit Management Kevin Fuller CEO, Grove Capital Management Kenneth Mendiwelson CEO, Refinancia Manu Rikhye Managing Director, Encore India 3
Slide 4: Ken Vecchione, President and CEO
PROPRIETARY Ken Vecchione President and CEO 4
Slide 5: Encore is a leading player in the consumer debt purchasing and recovery industry
PROPRIETARY ENCORE IS A LEADING PLAYER IN THE CONSUMER DEBT PURCHASING AND RECOVERY INDUSTRY ... and generate predictable cash flows over a multi-year time horizon Total Cash Collections Portfolio Purchase Price Illustrative cash collections 2-3x Years 1-2 Years 3-4 Years 5-6 Years 7-8 We deploy cap
Slide 6: Debt collection industry creates value benefiting stakeholders in multiple industries
PROPRIETARY WE ARE PART OF A DEBT COLLECTION INDUSTRY WHICH CREATES VALUE BENEFITING STAKEHOLDERS IN MULTIPLE INDUSTRIES 6 • Reduces creditor losses from delinquent debt, contributing to profitability and solvency • Enables creditors to serve a large consumer base at lower prices • Enhances access t
Slide 7: Encore has delivered a track record of strong, sustainable financial results
PROPRIETARY $205 $260 $343 $444 $577 $784 08 09 10 11 12 13 $0.55 $1.28 $1.89 $2.36 $3.04 $2.94 08 09 10 11 12 13 $398 $487 $604 $761 $948 $1,280 08 09 10 11 12 13 $0.55 $1.28 $1.89 $2.36 $3.15 $3.86 08 09 10 11 12 13 ENCORE HAS DELIVERED A TRACK RECORD OF STRONG, SUSTAINABLE FINANCIAL RESULTS ... 7
Slide 8: Market leading total shareholder return over the past five years
PROPRIETARY 0 100 200 300 400 500 600 700 800 2008 2009 2010 2011 2012 2013 ... AND HAS DELIVERED MARKET LEADING TOTAL SHAREHOLDER RETURN OVER THE PAST FIVE YEARS Total Shareholder Return (Dec. 2008 – Dec. 2013) NASDAQ Financial 100 Encore Capital S&P SmallCap 600 ($) Russell 2000 8 NASDAQ Financial
Slide 9: Significant geographic diversification
PROPRIETARY WITH OUR GROWTH HAS COME SIGNIFICANT GEOGRAPHIC DIVERSIFICATION West Malling UKH Costa Rica New Delhi, India London, UK Worthing, UK Dublin, Ireland Encore India St. Cloud, MN San Antonio, TX Warren , MI San Diego, CA 9 Phoenix, AZ Colombia and Peru
Slide 10: The U.S. debt buying industry has changed over the past few years
PROPRIETARY THE U.S. DEBT BUYING INDUSTRY HAS CHANGED OVER THE PAST FEW YEARS 10 • U.S. banks are decreasing their credit card books and market default rates are decreasing – Less supply coming to market • Debt buyers in our core market are consolidating –Fewer opportunities for portfolio purchases
Slide 11: Regulatory activity remains high, reinforcing importance of compliance investments
PROPRIETARY REGULATORY ACTIVITY REMAINS HIGH, REINFORCING THE IMPORTANCE OF OUR SIGNIFICANT INVESTMENTS IN COMPLIANCE 11 CFPB Rulemaking, Supervision & Enforcement • Rulemaking likely to result in new standards in 2015 • Activity in aggressive enforcement and supervision already driving change in cr
Slide 12: Historically we have anticipated and adapted to market changes
PROPRIETARY Lower Volume & Regulatory Pressure Attractive Opportunities Overconfidence & Irrational Pricing An Emerging Market 12 HISTORICALLY WE HAVE ANTICIPATED AND ADAPTED TO MARKET CHANGES WITH STRATEGIC DECISIONS – THIS TIME IS NO DIFFERENT • Established our center in India • Activity-level cos
Slide 13: Well positioned to adapt to market changes and deliver top quartile TSR
PROPRIETARY ENCORE IS WELL POSITIONED TO ADAPT TO MARKET CHANGES AND CONTINUE TO DELIVER TOP QUARTILE TSR 13 Management Team • Learning Organization • Principled Intent Top Quartile TSR Earnings growth, Free Cash Flow, PE expansion Operational Scale & Cost Leadership Strong Capital Stewardship Super
Slide 14: Our current growth strategy is tailored to market dynamics
PROPRIETARY OUR CURRENT GROWTH STRATEGY IS TAILORED TO ADDRESS OUR MARKET'S EVOLVING DYNAMICS 14 Current Growth Strategy • International – India – Europe – Latin America – Australia – Others • New debt verticals – Government – Medical – Others Invest In Attractive Adjacencies: International and Othe
Slide 15: Acquisitions have been key to carrying out this strategy
PROPRIETARY ACQUISITIONS HAVE BEEN KEY TO CARRYING OUT THIS STRATEGY 15 2013 Maintain the Core and Grow Our Subsidiaries 1 Invest In Attractive Adjacencies Explore Business Model Expansions 2012 Large Competitor Portfolio 2 3 2014 Note: Encore ownership in Refinancia was purchased on Dec. 13, 2013
Slide 16: Each transaction aligned with our M&A playbook
PROPRIETARY EACH TRANSACTION HAS BEEN ALIGNED WITH OUR M&A PLAYBOOK 16 Strong Growth Companies Strategic Direction Operational Improvements Attractive Markets Successful Acquisition • Profitable, growing companies with leading market share, or niche market dominance • Strong compliance controls and
Slide 17: Always innovating in our analytical approach to improve portfolio liquidations
PROPRIETARY WE ARE ALWAYS INNOVATING IN OUR ANALYTICAL APPROACH TO IMPROVE PORTFOLIO LIQUIDATIONS 17 Indexed vintage year liquidation rate1 1. Of like portfolios and time periods 150 131 100 2012 2008 2016F
Slide 18: Paul Grinberg, CFO
PROPRIETARY Paul Grinberg CFO, Encore Capital 18
Slide 19: Many alternatives for deploying our capital
PROPRIETARY THERE ARE MANY ALTERNATIVES FOR DEPLOYING OUR CAPITAL 19 Lower Returns Higher Returns • Little upside Acquisitions Dividend & Share Repurchase Repay Debt Keep Excess Cash • Reduced capital base and enhanced pre-tax earnings • Return excess capital to shareholders assuming capital redeplo
Slide 20: Growing and diversifying capital deployment across businesses
PROPRIETARY 2015 Expected Core US Propel Cabot Grove India Refinancia $500-600M $170-200M $350-400M $110-120M $40-50M $30-40M $1,200-1,410M 2014 Expected Core US Propel abot Grove India Refinancia $500-600M $150-170M $300-350M $60-70M $30-40M $1,040-1,230M $555M $145M $20M 2013 $780M $60M Core US Pr
Slide 21: Returning capital to shareholders via share repurchases
PROPRIETARY WE HAVE ALSO FOUND OPPORTUNITIES TO RETURN CAPITAL TO SHAREHOLDERS VIA SHARE REPURCHASES 21 Encore share repurchases 2012-2014 Price per Share1: $26 $42 1. Weighted average repurchase price for the period 2015 and beyond • Repurchases to cover employee equity grant dilution • Opportunist
Slide 22: Acquisitions expected to generate immediate and growing earnings
PROPRIETARY WE EXPECT THAT OUR ACQUISITIONS WILL GENERATE IMMEDIATE AND GROWING EARNINGS 22 2 0 1 2 2 0 1 3 2 0 1 4 India Debt Purchasing 2013 2014 2015 2014 2015 2016 2017+ 2013 2012 EPS Contribution
Slide 23: Propel is a good example of spotting an excellent acquisition
PROPRIETARY PROPEL IS A GOOD EXAMPLE OF HOW WE ARE ABLE TO SPOT AN EXCELLENT ACQUISITION OPPORTUNITY ... 23 Strong Growth Company • Leading market share in Texas with platform to gain share • Niche market dominance Attractive Market • Large, national market • 80% of Texas market underpenetrated Stra
Slide 24: Executing a growth plan to generate substantial results
PROPRIETARY ... AND EXECUTE A GROWTH PLAN TO GENERATE SUBSTANTIAL RESULTS 24 • Leading market consolidation by acquiring ~$80M in competitor portfolios • Expanded Tax Lien deployments to 18 new states; now operating in 22 states • Leveraged Encore's lower-cost outbound calling facilities to improve
Slide 25: Ken Stannard, CEO, Cabot Credit Management
PROPRIETARY Ken Stannard CEO, Cabot Credit Management 25
Slide 26: Cabot Credit Management leads the UK debt purchasing market
PROPRIETARY • Purchases charged off consumer receivables in UK • UK leader with $2.3B in ERC • Invested $1.7B to acquire $18B in face value of debt since inception • Acquired more than 1,035 portfolios since inception, representing more than 4.4 million accounts • 950 employees 26 CABOT CREDIT MANAG
Slide 27: Market is growing strongly with Cabot well positioned
PROPRIETARY 27 2.6 1.3 0.0 Paying Non- Paying 17F 2.1 1.1 1.0 16F 1.9 1.0 0.9 15F 1.8 1.0 0.7 14F 1.6 1.0 0.7 13A 1.5 0.9 0.6 12A 1.4 0.9 0.6 +9% 13A – 17F CAGR +12% +6% Capital Deployment Drivers of success • Vendor panel membership • Competitive funding and cost • Investments in data and analytics
Slide 28: Integration into Encore's Indian operating site is well underway
PROPRIETARY 28 45 30 18 0 25 50 June January Indian Customer Consultants May India headcount ramp up • Commenced operations in India ahead of schedule in January 2014 with 18 Customer Consultants • Initial team spent 10 weeks in the UK for their induction to aid their cultural learning • Initial per
Slide 29: Marlin acquisition provides additional growth and synergy opportunities
PROPRIETARY 29 Uplift in ERC • Apply Cabot payment management strategies to Marlin accounts • Apply Marlin proprietary scorecard to Cabot back-book Semi performing debt Focus on management of average payment Large balance, non-paying debt Focus on scoring accounts that are suitable for litig
Slide 30: Marlin's scorecard is providing uplift to Cabot's ERC
PROPRIETARY (1.0)x 0.0 x 1.0 x 2.0 x 3.0 x 4.0 x 5.0 x 6.0 x 0 12 24 36 48 60 72 84 96 108120 Marlin scorecard Bureau scorecard 30 • Marlin scorecard predicted to enhance recoveries by 41% on eligible portfolios • Cabot has already identified uplift in ERC using Marlin scorecard • Marlin scorecard w
Slide 31: Cabot's strategic direction to leverage UK market growth
PROPRIETARY 31 • Capitalize on leading UK market position • Leverage Marlin acquisition to gain front- and back-book advantage • Maintain disciplined acquisition process • Continue to integrate into Encore's low-cost Indian platform • Evaluate significant UK portfolio acquisition opportunities WITH
Slide 32: Kevin Fuller, CEO, Grove Capital Management
PROPRIETARY Kevin Fuller CEO, Grove Capital Management 32
Slide 33: Grove is a specialist debt purchase management platform
PROPRIETARY • Started in UK in 2010, entered Spain in 2013 • Structured as an investment manager purchasing through SPVs and servicing through servicing partners • Current portfolio is largely UK insolvency and Spanish telecom assets –$2.5B portfolio –2 million accounts –$170M capital deployed (90%
Slide 34: IVAs are the main opportunity within the UK insolvency market
PROPRIETARY 34 • Chapter 13 equivalent • Consumer unable to repay creditor - works with a regulated Insolvency Practitioner to set up payment plan –Voluntary, avoids bankruptcy –Applies to all unsecured debts • 35-40% of balance repaid over 5 years $3 billion of accounts enter IVAs each year worth $
Slide 35: Scalable data-based purchasing platform
PROPRIETARY Market Knowledge & Relationship Servicing Partnerships Funding & Structuring Flexibility 35 Data & Analytics Deal Sourcing Evaluation Performance Optimization Portfolio Management Structuring GROVE HAS BUILT A SCALABLE DATA-BASED PURCHASING PLATFORM THAT SUPPORTS GROWTH INTO NEW ASSET CL
Slide 36: Entered Spain in 2013 and ready to start scaling
PROPRIETARY LEVERAGING OUR PLATFORM AND SERVICER RELATIONSHIPS WE ENTERED SPAIN IN 2013 AND ARE NOW READY TO START SCALING 36 2013-14: Establish Base • Started in telecom debt where competition is lower • Large and growing dataset – 1.7 million consumer accounts • Actively managing debt with 10 coll
Slide 37: Spain allowed us to refine our market entry model
PROPRIETARY • SPVs/licensing • Commercial structures • Technology • Processes SPAIN ALLOWED US TO REFINE OUR MARKET ENTRY MODEL WHICH WILL DRIVE GROWTH INTO NEW SEGMENTS 37 Find Servicing Partners Make Test Investments Scale Portfolio Establish Local Team Optimize Collections Strategy Leverage Core
Slide 38: Growth opportunities to increase annual spend from $50M to $160M by 2016
PROPRIETARY GROWTH OPPORTUNITIES EXPECTED TO INCREASE ANNUAL SPEND FROM $50M TO $160M BY 2016 38 UK Insolvency • Opportunity is $600M in existing issuer unsold inventory + annual volume worth $350M • Creditors shifting towards flow sales $80M target annual spend by 2016 1 Spain • Continued deleverin
Slide 39: Grove and Encore are aligned strategic partners
PROPRIETARY GROVE AND ENCORE ARE ALIGNED STRATEGIC PARTNERS 39 • Combines Encore's capital resources with Grove's established market positions • Leverages Encore’s deep collections experience and operational performance best practices to continue to improve performance • Enhances Grove's ability to
Slide 40: Kenneth Mendiwelson, CEO, Refinancia
PROPRIETARY Kenneth Mendiwelson CEO, Refinancia 40
Slide 41: Refinancia provides solutions to individuals seeking specialized credit alternatives
PROPRIETARY REFINANCIA PROVIDES SOLUTIONS TO INDIVIDUALS WHO SEEK SPECIALIZED CREDIT ALTERNATIVES 41 • Founded in 2005 • Purchases and services charged off bank portfolios • Distributes and manages credit cards offered to Refinancia customers • Distributes and manages guaranteed payment plans offere
Slide 42: Consumer credit market in Latin America has experienced solid growth
PROPRIETARY - 50 100 150 200 250 300 2008 2009 2010 2011 2012 2013 Argentina Brazil Chile Colombia Mexico Peru 15% 5% 15% 8% 14% 26% CAGR THE CONSUMER CREDIT MARKET IN LATIN AMERICA HAS EXPERIENCED SOLID GROWTH Consumer Credit: Outstanding Balance ($B) 42 Source: Euromonitor: Consumer Lending in Arg
Slide 43: Refinancia manages four businesses
PROPRIETARY REFINANCIA MANAGES FOUR BUSINESSES WHERE COLLECTIONS AND ANALYTICS PLAY A FUNDAMENTAL ROLE • Purchase and collection of charged-off portfolios from large banks • Management and collection of charged-off pools from banks • In many cases leads to portfolio purchase • Management of credit c
Slide 44: Each business is growing
PROPRIETARY EACH BUSINESS IS GROWING 2013A 2014F Growth Deployed ($M) Unpaid balance managed ($M)1 Outstanding balance managed ($M) Guaranteed/Year ($M) 19 40 109% 330 445 35% 0.8 4.1 410% 306 320 5% NPL Purchase and Recovery Collection Outsourcing Credit Card Pilot Guarantee Services for Merchants
Slide 45: Partnership with Encore expected to accelerate Refinancia's growth
PROPRIETARY THE PARTNERSHIP WITH ENCORE IS EXPECTED TO ACCELERATE REFINANCIA'S GROWTH • Built initial business model, refined analytics • Diversified into new geographies and lines of business • Established reputation as a market leader • Leverage partnership with Encore • Transfer and implement bes
Slide 46: Refinancia and Encore are aligned strategic partners
PROPRIETARY REFINANCIA AND ENCORE ARE ALIGNED STRATEGIC PARTNERS 46 • Combines Encore's capital resources with Refinancia's growing markets • Improvements in call center operational processes and technology • Applying best-in-class Decision Science methodologies • Provides testing ground for special
Slide 47: Manu Rikhye, Managing Director, Encore India
PROPRIETARY Manu Rikhye Managing Director, Encore India 47
Slide 48: Encore India
PROPRIETARY ENCORE INDIA 48 • Established in 2005, today a key driver of Encore’s competitive advantage • Evolved as a strategic partner and diversified business with significant depth and broad service offerings • Contributed ~50% of global call center collections in 2013 • Named in the Top 50 GPTW
Slide 49: Indian economy has strong growth fundamentals
PROPRIETARY THE INDIAN ECONOMY HAS STRONG GROWTH FUNDAMENTALS, ESPECIALLY IN THE FINANCIAL SECTOR 1.0 0.0 0.5 1.5 2.0 1.8 1.6 $ Trillion 09 1.4 1.2 1.0 08 0.9 13 12 11 10 1.0 0.0 0.5 $ Trillion 13 0.9 12 0.8 11 0.7 10 0.6 09 0.5 08 0.4 GDP Growth Gross credit growth in India - Commercial banks Note:
Slide 50: Large gap between supply and demand of charge-offs
PROPRIETARY THERE IS A LARGE GAP BETWEEN SUPPLY AND DEMAND, THOUGH SEVERAL FACTORS ARE LIKELY TO INCREASE CHARGE-OFF SALES $35 $26 $18 $15 $12 4%5% 13%13%15% 2012 2011 2013 2010 2009 Gross Bank Charge-Offs ($B)2 Sale of Charge-Offs to ARCs1 Market supply and demand for bank charge-offs • Most banks
Slide 51: Purchasing domestic charge-offs in India through an ARC structure
PROPRIETARY ENCORE WILL PURCHASE DOMESTIC CHARGE-OFFS IN INDIA THROUGH AN ASSET RECONSTRUCTION COMPANY STRUCTURE Banks/FIs Other equity partners Encore Capital Group & its affiliates 50% Encore U.S. Encore Asset Reconstruction Company 50% Other Investors Equity Debt Potential ARC funding structure 5
Slide 52: Working to achieve launch in early 2015
PROPRIETARY WE ARE WORKING EXPEDITIOUSLY TO ACHIEVE OUR LAUNCH IN EARLY 2015 Oct’13 Jan’14 Apr’14 Jul’14 Oct’14 Entity creation & partner finalization Operational planning and readiness Regulatory approvals Hiring key positions Jan’15 Apr’15 Launch 52
Slide 53: Indian debt buying opportunity aligned with global diversification strategy
PROPRIETARY THE INDIAN DEBT BUYING OPPORTUNITY IS STRONGLY ALIGNED WITH ENCORE’S GLOBAL DIVERSIFICATION STRATEGY • Aligns with Encore’s core strengths in the charged-off financial receivables market • Develops consumer database for future products and services • Takes advantage of Encore’s existing
Slide 54: Ken Vecchione, President and CEO
PROPRIETARY Ken Vecchione President and CEO 54
Slide 55: Q&A
Q&A encore = CAPITAL @ROUE PROPRIETARY
Slide 56: Appendix
APPENDIX encore = our PROPRIETARY
Slide 57: Reconciliation of Adjusted EBITDA to GAAP Net Income
PROPRIETARY 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 8,405 10,861 11,730 12,2
Slide 58: Reconciliation of Adjusted Income and Adjusted/Economic EPS
PROPRIETARY RECONCILIATION OF ADJUSTED INCOME AND ADJUSTED/ECONOMIC EPS Reconciliation of Adjusted Income and Adjusted/Economic EPS to GAAP EPS (Unaudited, in thousands, except per share amounts), Full Year 2013 2012 $ Per Diluted Share – Accounting Per Diluted Share – Economic1 $ Per Diluted Share
Slide 59: Encore Capital Group, Inc. 2014 Investor Day
Encore Capital Group, Inc. 2014 Investor Day New York, NY June 5, 2014