Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — William Blair 4th Annual Emerging Growth Stock Conference (October 2010)
23 slides from Encore Capital's conference presentation, Oct 6, 2010
Slide 1: William Blair 4th Annual Emerging Growth Stock Conference
Exhibit 99.1 William Blair 4th Annual Emerging Growth Stock Conference October 5, 2010
Slide 2: Cautionary Note About Forward-Looking Statements
1 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 “may,” “believe,” “projects,” “expects,” “anticipates” or the negation thereof, or similar expre
Slide 3: Encore Is a Leading Player in the Consumer Debt Buying and Recovery Industry
2 ENCORE IS A LEADING PLAYER IN THE CONSUMER DEBT BUYING AND RECOVERY INDUSTRY Distressed consumer debt purchasing (95% of revenue) • Purchase and collection of charged-off consumer receivables (primarily credit card) • Robust business model emphasizing consumer intelligence and operational speciali
Slide 4: We Operate in Five Different Sites Across the U.S. and India
3 WE OPERATE IN FIVE DIFFERENT SITES ACROSS THE U.S. AND INDIA San Diego, CA • Headquarters • Call center site St Cloud, MN • Call center site Arlington, TX • Bankruptcy servicing Phoenix, AZ Delhi, India Defaulted consumer debt purchasing Bankruptcy servicing business • Call center site • Call cent
Slide 5: We Are Well Positioned Today Because of Key Strategic Decisions We Made
4 Several competitors are now known to have overpaid for portfolios and are in financial distress or have exited the industry Between 2005 and 2007, we remained disciplined and avoided high priced portfolios that did not meet internal hurdle rates In late 2005, we established call center in India We
Slide 6: These Decisions Are the Drivers Behind Our Strong Q2 Results
5 2010 Q2 2009 Q2 Q2 YOY Growth Variance $156,789 $34,416 28% $122,373 Collections $96,231 $18,196 23% $78,035 Revenue $90,458 $25,776 40% $64,682 Adjusted EBITDA* $83,336 $1,303 2% $82,033 Purchases $0.47 $0.19 68% $0.28 EPS ($000s, except EPS and ratios) THESE DECISIONS ARE THE DRIVERS BEHIND OUR
Slide 7: We Have Nearly Doubled Collections Over the Last Four Years
6 WE HAVE NEARLY DOUBLED COLLECTIONS OVER THE LAST FOUR YEARS Quarterly gross collections ($ millions) $156.8 $122.4 $102.1 $93.6 $79.2
Slide 8: And We Are Increasing Our Operating Cash Flows Faster Than Collections
7 AND WE ARE INCREASING OUR OPERATING CASH FLOWS (ADJUSTED EBITDA) AT A FASTER RATE THAN COLLECTIONS Adjusted EBITDA* by quarter ($ millions) * Adjusted EBITDA is a non-GAAP number. The Company considers Adjusted EBITDA to be a meaningful indicator of operating performance and uses it as a measure t
Slide 9: Lower Cost Structure Driven by Expansion Into India
8 A MAJOR CONTRIBUTOR TO THE IMPROVING CASH FLOW IS OUR LOWER COST STRUCTURE, DRIVEN BY EXPANSION INTO INDIA Cost per dollar collected Overall Cost-to-Collect Sites’ Direct Cost-to-Collect
Slide 10: Our India Site Now Accounts for Nearly Half of Call Center Collections
9 OUR INDIA SITE NOW ACCOUNTS FOR NEARLY HALF OF OUR CALL CENTER COLLECTIONS Collections from all call centers India contribution 10% 19% 30% 40% ($ millions) $126 $157 $186 ~$250
Slide 11: We Are Reinvesting Cash Back Into the Business Through Increased Purchasing Volumes
10 Full year purchases for 2008 and 2009; Estimate for 2010 ($ millions) WE ARE REINVESTING CASH BACK INTO THE BUSINESS THROUGH INCREASED PURCHASING VOLUMES $230.3 $300.0 $256.6 2008 2009 2010E
Slide 12: We Are Growing the Company's Embedded Value Faster Than Total Debt
11 WE ARE GROWING THE COMPANY’S EMBEDDED VALUE AT A FASTER PACE THAN TOTAL DEBT Annual Estimated Remaining Gross Collection (ERC) and Total Debt ($ millions, at end of period)
Slide 13: Our Current Estimate of Remaining Collections Is Conservative
12 AND 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 $2,750 Cumulative collections (initial expectation vs. actual) ($ millions, Jan – June 10) Actual cash collections Initial project
Slide 14: Market Dynamics Have Influenced Our Approach to the Business
13 MARKET DYNAMICS HAVE INFLUENCED 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 Conti
Slide 15: Consumers' Payment Behavior and Our Performance Remain Consistent
14 DESPITE THE MACROECONOMIC HEADWINDS, OUR CONSUMERS’ PAYMENT BEHAVIOR AND OUR PERFORMANCE REMAIN 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
Slide 16: Our Overall Payer Rates Have Improved
15 AND OUR OVERALL PAYER RATES HAVE IMPROVED Overall payer rate for all active inventory
Slide 17: We Are Positioned to Respond to the Changing Regulatory Environment
16 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 18: Our Operational Success Is Based Upon Four Strategic Priorities
17 OUR OPERATIONAL SUCCESS IS BASED UPON FOUR STRATEGIC PRIORITIES ENCORE’S STRATEGIC PILLARS ANALYTIC STRENGTH COST LEADERSHIP CONSUMER INTELLIGENCE PRINCIPLED INTENT
Slide 19: Analytic Insight Matches Collection Approach to Consumer Payment Behavior
18 Strong partnership opportunities with willing and able consumers Our attempts to contact or work with consumers are typically ignored , and the legal option becomes necessary Hardship strategies Offer significant discounts and plans that accommodate many small payments Remind consumers of their o
Slide 20: Our Analytic Reach Extends From Pre-Purchase Throughout Ownership
19 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 21: Our Model Is Superior to What Can Be Acquired Commercially
20 Collections lift over deciles, comparing Encore’s ability-to-pay model against both competitor scores and random servicing strategies Commercial score 1 Random servicing Commercial score 2 Encore AND IS SUPERIOR TO WHAT CAN BE ACQUIRED COMMERCIALLY
Slide 22: Summary
21 SUMMARY • Favorable supply and demand dynamics are driving a strong purchasing year • Strong performance is expected to continue • Operational and financial leverage is increasing, largely due to our successful operating center in India • Insights gained through rigorous analytics inform our stra
Slide 23: Reconciliation of Adjusted EBITDA to GAAP Net Income
22 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/