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| 8-K - FORM 8-K - ENCORE CAPITAL GROUP INC | d236261d8k.htm |
 Encore Capital Group
JMP Securities Financial Services
and Real Estate Conference
September 26, 2011
Exhibit 99.1 |
 CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
2
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 expressions, constitute “forward- looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”).
These statements may include, but are not limited to, statements regarding our future operating
results and growth. For all “forward-looking statements,” the Company
claims the protection of the safe harbor for forward-looking statements contained in the
Reform Act. Such forward-looking statements involve risks, uncertainties and other
factors which may cause actual results, performance or achievements of the Company and
its subsidiaries to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These risks,
uncertainties and other factors are discussed in the reports filed by the Company with the
Securities and Exchange Commission, including the most recent reports on Forms 10-K,
10-Q and 8-K, each as it may be amended from time to time. The Company disclaims any
intent or obligation to update these forward-looking statements. |
 INVESTMENT HIGHLIGHTS
3
•
Investments made over the past few years have driven
significant improvements in collections, cash flow and earnings
•
Difficult regulatory environment being managed proactively
•
Expanding presence in India, combined with new strategic
initiatives, are expected to continue increasing cash flow from
operations
•
Demonstrated ability to raise and profitably deploy capital in
favorable and unfavorable business cycles |
 ENCORE
IS A LEADING PLAYER IN THE CONSUMER DEBT BUYING AND RECOVERY INDUSTRY
4
Revenue Composition
As of June 30, 2011
Global Capabilities
Debt Purchasing & Collections
Bankruptcy Servicing
•
Purchase and collection
of
charged-off unsecured
consumer receivables
(primarily credit card)
•
Robust business model
emphasizing consumer
intelligence and
operational
specialization
•
Invested ~$2.0 billion to
acquire receivables with a face
value of ~$61 billion
•
Acquired ~36 million consumer
accounts since
inception
•
Process secured consumer bankruptcy accounts for leading
auto
lenders and other financial institutions
•
Proprietary software dedicated to bankruptcy servicing
•
Operational platform that integrates lenders, trustees,
and
consumers
St Cloud, MN
Arlington, TX
Phoenix, AZ
Delhi, India
Call Center /
Technology Site
Call Center Site
Ascension
Call Center Site
San Diego, CA
Debt Purchasing & Collections
Bankruptcy Servicing
Headquarters/
Call Center Site |
 STRATEGIC DECISIONS MADE OVER THE PAST DECADE
DEMONSTRATE OUR ABILITY TO FORESEE AND ADAPT TO CHANGE
5
•
Established our operating
center in India
•
Created an activity-level cost
database
•
Built and implemented the
industry’s first known ability-to-
pay (capability) model
Overconfidence and
Irrational Pricing
2005
2007
2006
2008
•
Created first generation
consumer-level underwriting
models
An Emerging
Market
Demand
Supply
2001
2002
2003
2004
Attractive
Opportunities
2009
2010
2011
•
Expanded access to
capital |
 $150
$250
$350
$450
$550
$650
2007
2008
2009
2010
LTM**
Gross Collections
Adjusted EBITDA
AS A RESULT, WE HAVE GENERATED STRONG RESULTS DESPITE THE
MACROECONOMIC DOWNTURN
6
($ 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 to
assess the operating performance of the Company. See Reconciliation of Adjusted
EBITDA to GAAP Net Income at the end of this presentation **
LTM data as of 06/30/2011
Adjusted EBITDA* and Gross Collections by year |
 Metric
Recent trend
•
Payer rates
•
Upward
•
Average payment size
•
Stable
•
Payment style
•
More payment plans
•
Broken payer rates
•
Mild improvement
•
Settlement rates
•
Stable
7
OUR CONSUMERS HAVE SHOWN THAT THEY ARE RESILIENT |
 PAYER
RATES HAVE ACTUALLY INCREASED OVER THE PAST FEW YEARS
8
Overall payer rate for all active inventory
2008
0.8%
0.9%
1.0%
1.1%
1.2%
1.3%
1.4%
1.5%
1.6%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2009
2010
2011 |
 51.5
50.2
47.6
43.7
40.4
2007
2008
2009
2010
H1 2011
WE HAVE FUNDAMENTALLY CHANGED THE COST STRUCTURE OF THE
COMPANY OVER THE PAST FOUR YEARS
9
Overall Cost-to-Collect
(%)
An 1110 basis point
reduction in cost-to-
collect translated into
$43 million in cost
savings in H1 2011 |
 LED BY
OUR INDIA CENTER, WHICH IS EXPECTED TO PRODUCE HALF OF ALL 2011 CALL CENTER
COLLECTIONS 10
Collections from all Call Centers
Percent
of Total:
10%
19%
30%
44%
50%
2007
2008
2009
2010
2011E
India
U.S.
$126
$157
$186
$268
~$340
($ millions) |
 11
DESPITE LOCAL WAGE INFLATION, WE HAVE BEEN ABLE TO MAINTAIN
OUR TOTAL COST PER EMPLOYEE
* Cost per FTE includes all India site costs
Monthly Cost per Account Manager (FTE)*
($)
$1,760
$
1,590
$1,910
$1,680
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
2007
2008
2009
2010 |
 WE
CONTINUE TO BUILD A SUBSTANTIAL RESERVOIR FOR THE FUTURE
12
Annual Estimated Remaining Gross Collection (ERC) and Total Debt
($ millions, at end of period)
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2006
2007
2008
2009
2010
Q2 2011
ERC
Total Debt |
 WE
BELIEVE OUR CURRENT ESTIMATE OF REMAINING COLLECTIONS IS CONSERVATIVE GIVEN OUR
HISTORY 13
Cumulative collections (initial expectation vs. actual)
($ millions, March 01 –
June 11)
Initial
projections
$-
$250
$500
$750
$1,000
$1,250
$1,500
$1,750
$2,000
$2,250
$2,500
$2,750
$3,000
$3,250
$3,500
Actual cash
collections |
 OUR
ABILITY TO INCREASE PURCHASES IS A RESULT OF NOT BEING LIMITED TO A PARTICULAR
ASSET CLASS OR AGE OF RECEIVABLE 14
Historical Purchase Mix by Year, 2011 Estimate
($ millions)
$0
$50
$100
$150
$200
$250
$300
$350
$400
2005
2006
2007
2008
2009
2010
2011E
Fresh Credit Card
Older Credit Card
Telecom, BK, and other (combined) |
 OUR
BUSINESS MODEL IS CRITICALLY IMPORTANT, AS IT PROVIDES THE CONSUMER WITH TIME
TO RECOVER 15
Timeframe
Process and
relationship
with consumers
Outcome
•
Charge-off threshold
extends a maximum of
6 months
Transactional
•
Attempt immediate
resolution during
delinquency cycle
(days 30 –
180)
•
Consumer is “charged-
off”
by issuer on day 181
•
Issuer offers to sell
unsecured, charged-off
debt or service through
3rd party agencies
•
Four-to-six month
collection cycle
Pressured
•
Artificial deadlines
•
Multiple collection
companies
•
Counterproductive
incentive structure
•
Consumer is
confused and
frustrated
•
Consumer has 84 months
to recover financially
Partnership
•
Create partnership strategy
and set goals
•
Tailor work strategies to
individual circumstances,
giving them time for a
consumer to recover
•
Maximizes likelihood of
repayment, creates
consistency, and ensures
that consumers are treated
fairly
CONTINGENCY
COLLECTION
AGENCY
ORIGINAL
CREDITOR |
 OUR
LONG-TERM MODEL HAS ALLOWED MORE THAN TWO MILLION CONSUMERS TO MOVE
TOWARD FINANCIAL RECOVERY 16
Consumers with whom we have partnered to retire their debt (cumulative)
-
500,000
1,000,000
1,500,000
2,000,000 |
 WE
HAVE TAKEN A LEADERSHIP STANCE BY OUTLINING OUR CORE PRINCIPLES IN AN
INDUSTRY-FIRST CONSUMER BILL OF RIGHTS 17
•
Clearly states what our consumers
should expect during the collection
process
•
Gives consumers concrete
assurances about our conduct
–
No interest once payments
are established, if maintained
–
No systematic messages left
–
Cessation of collections
under certain circumstances
•
Positions Encore as a company that
governmental entities should
consult with prior to enacting
regulations that impact the industry |
 WE
BELIEVE LONG-TERM PROFITABILITY IN THIS INDUSTRY WILL BE DRIVEN BY
EXCELLENCE IN THREE KEY AREAS 18
Consumer-
level
underwriting
Superior
collection
approach
Low-cost
collection
platform |
 OUR
STRONG PORTFOLIO PURCHASING TRACK RECORD IS DRIVEN BY AN UNDERWRITING MODEL
FOCUSED ON INDIVIDUAL CONSUMERS 19
Deal Accuracy Since 2000
915
Total purchase
transactions
866
Total
profitable
deals
(39)
Principal not
fully recovered
(Count based on actual results plus forecast)
Principal recovered,
but not all servicing
costs
(10)
Since 2000, 95%
of our portfolio
purchases have
been profitable |
 PURCHASING ACCURACY AND OUR ANALYTIC OPERATING MODEL
HAVE LED US TO CONSISTENTLY OUTPERFORM OUR PEERS
20
Cumulative Actual Collection Multiples by Vintage Year as of June 30, 2011
(Total Collections / Purchase Price)
Source: SEC Filings, Encore Capital Group Inc.
0.00x
0.50x
1.00x
1.50x
2.00x
2.50x
2005
2006
2007
2008
2009
2010
2011
ECPG
Peer 1
Peer 2 |
 WE ARE
IN THE PROCESS OF BUILDING UPON OUR PRIOR SUCCESSES WITH POWERFUL STRATEGIC
INITIATIVES 21
Drive a meaningful portion of our legal
collections through internal resources
1.
Diversify our legal
platform
Create a world class near-shore facility
2.
Capture incremental
value through
increased offshore
activities
Collaborate with accomplished academics to
extend our deep consumer knowledge
3.
Develop new insights
about our consumers |
 IT
WILL TAKE SOME TIME BEFORE THE INSOURCING OF LEGAL CONTRIBUTES TO THE BOTTOM
LINE 22
Number of
states
5
10
17
27
EoY
headcount
120-140
225-250
350-375
450-500
Placements, Collections
(#, $ millions)
$3
$18
$54
$104
$0
$20
$40
$60
$80
$100
$120 |
 23
Spanish Account Inventory
(000s)
WE ARE ALSO ADDRESSING OUR GROWING POPULATION OF
SPANISH-SPEAKING CONSUMERS
Our presence in San
Diego and Phoenix
provides us with a
natural hiring pool, but
hiring cannot keep pace
with inventory growth
US-based Spanish
servicing is challenging
because of labor
availability and cost
520
661
845
950
1,100
0
200
400
600
800
1,000
1,200
H2 '09
H1 '10
H2 '10
H1 '11
H2 11 (E) |
 FINALLY, WE ARE CREATING A CENTER OF EXCELLENCE DEDICATED
TO UNDERSTANDING FINANCIALLY DISTRESSED CONSUMERS
24
A new demographic
segment has emerged
It has unique features, is
growing, and has needs that
are only marginally served
by existing business models
Unique consumer
demographics
Focus on broader
population confounds
efforts to understand
and respond to new
population
Confusing policy
environment
Consumer decisions are
poorly understood, many
voices confuse the
issues, and discussions
often substitute
anecdotes for data
Accelerating industry
maturation
Leading companies now
capable of making
investments in R&D and
integrating their discoveries
Clear educational
opportunities
Strengthen personal finance,
planning, and credit skills
through focused outreach
and expert instruction |
 SUMMARY
25
•
Investments made over the past few years have driven
significant improvements in collections, cash flow and earnings
•
Difficult regulatory environment being managed proactively
•
Expanding presence in India, combined with new strategic
initiatives, are expected to continue increasing cash flow from
operations
•
Demonstrated ability to raise and profitably deploy capital in
favorable and unfavorable business cycles |
 APPENDIX |
 APPENDIX A: CUMULATIVE COLLECTIONS BY PORTFOLIO VINTAGE
27
Cumulative Collections through June 30, 2011 (000’s)
Year
of
Purchase
Purchase
Price
<2005
2005
2006
2007
2008
2009
2010
2011
Total
CCM
<2005
$385,478
$749,791
$224,620
$164,211
$85,333
$45,893
$27,708
$19,986
$8,479
$1,326,021
3.4
2005
192,585
66,491
129,809
109,078
67,346
42,387
27,210
10,633
452,954
2.4
2006
141,028
42,354
92,265
70,743
44,553
26,201
10,367
286,483
2.0
2007
204,106
68,048
145,272
111,117
70,572
25,631
420,640
2.1
2008
227,872
69,049
165,164
127,799
50,634
412,646
1.8
2009
253,414
96,529
206,773
93,905
397,207
1.6
2010
359,305
125,853
156,051
281,904
0.8
2011
183,853
30,368
30,368
0.2
Total
$1,947,641
$749,791
$291,111
$336,374
$354,724
$398,303
$487,458
$604,394
$386,068
$3,608,223
1.9 |
 APPENDIX B: RECONCILIATION OF ADJUSTED EBITDA
28
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
3/31/07
6/30/07
9/30/07
12/31/07
3/31/08
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
6/30/11
GAAP net income, as reported
4,991
(1,515)
4,568
4,187
6,751
6,162
3,028
(2,095)
8,997
6,641
9,004
8,405
10,861
11,730
12,290
14,171
13,679
14,775
Interest expense
4,042
4,506
4,840
5,260
5,200
4,831
5,140
5,401
4,273
3,958
3,970
3,959
4,538
4,880
4,928
5,003
5,593
5,369
Contingent interest expense
3,235
888
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Pay-off of future contingent interest
-
11,733
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Provision for income taxes
3,437
(1,031)
1,315
2,777
4,509
4,225
2,408
(1,442)
5,973
4,166
5,948
4,609
6,490
6,749
6,632
9,075
8,601
9,486
Depreciation and amortization
869
840
833
810
722
766
674
652
623
620
652
697
673
752
816
958
1,053
1,105
Amount applied to principal on receivable portfolio
28,259
29,452
26,114
29,498
40,212
35,785
35,140
46,364
42,851
48,303
49,188
47,384
58,265
64,901
63,507
53,427
85,709
83,939
Stock-based compensation expense
801
1,204
1,281
1,001
1,094
1,228
860
382
1,080
994
1,261
1,049
1,761
1,446
1,549
1,254
1,765
1,810
Adjusted EBITDA
45,634
46,077
38,951
43,533
58,488
52,997
47,250
49,262
63,797
64,682
70,023
66,103
82,588
90,458
89,722
83,888
116,400
116,484
|