November 2, 2011 ENCORE CAPITAL GROUP Exhibit 99.1 |
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS 2 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. 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 • Demonstrated ability to raise and profitably deploy capital in favorable and unfavorable business cycles • Analytic insights that inform our valuation and operating strategies allow for a closer partnership with consumers • Operational and financial leverage is improving, largely due to the success of our operating center in India and new strategic initiatives |
ENCORE IS A LEADING PLAYER IN THE CONSUMER DEBT BUYING AND RECOVERY INDUSTRY 4 Global Capabilities 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 Revenue Composition As of September 30, 2011 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 ~$2.1 billion to acquire receivables with a face value of ~$63 billion • Acquired ~38 million consumer accounts since inception • Process secured consumer bankruptcy accounts for leading auto lenders and other financial institutions • Proprietary software dedicated to bankruptcy servicing • Operational platform that integrates lenders, trustees, and consumers Call Center Site 2012 Costa Rica |
ENCORE HAS GENERATED STRONG RESULTS DESPITE THE MACROECONOMIC DOWNTURN 5 ($ 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 in Appendix B to this presentation ** LTM data as of 09/30/2011 Adjusted EBITDA* and Gross Collections by year |
Metric Recent trend • Payer rates • Modestly upward • Average payment size • Stable • Payment style • More payment plans • Broken payer rates • Mild improvement • Settlement rates • Stable 6 OUR CONSUMERS HAVE SHOWN THAT THEY ARE RESILIENT AS EVIDENCED BY THE INCREASE OF PAYER RATES Overall Payer Rate for All Active Inventory |
WE HAVE FUNDAMENTALLY CHANGED THE COST STRUCTURE OF THE COMPANY OVER THE PAST FOUR YEARS, LED BY OUR INDIA CENTER 7 Overall Cost-to-Collect Collections from all Call Centers Percent of Total from India $126 $157 $186 $268 ~$340 10% 19% 30% 44% 50% ($ millions) |
DIVERSIFIED PURCHASE ACTIVITY AND CONSERVATIVE PROJECTIONS HAVE RESULTED IN A RESERVOIR OF FUTURE COLLECTIONS 8 |
OUR BUSINESS MODEL IS CRITICALLY IMPORTANT, AS IT PROVIDES THE CONSUMER WITH TIME TO RECOVER 9 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 ORIGINAL CREDITOR • Four-to-six month collection cycle Pressured • Artificial deadlines • Multiple collection companies • Counterproductive incentive structure • Consumer is confused and frustrated CONTINGENCY COLLECTION AGENCY • 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 |
WE HAVE TAKEN A LEADERSHIP STANCE BY OUTLINING OUR CORE PRINCIPLES IN AN INDUSTRY-FIRST CONSUMER BILL OF RIGHTS 10 |
PURCHASING ACCURACY AND OUR ANALYTIC OPERATING MODEL HAVE LED US TO CONSISTENTLY OUTPERFORM OUR PEERS 11 Cumulative Actual Collection Multiples by Vintage Year as of June 30, 2011 (Total Collections / Purchase Price) Source: SEC Filings, Encore Capital Group Inc. Since 2000, 95% of our portfolio purchases have been profitable |
WE HAVE CONSISTENTLY OUTPERFORMED OUR PEERS AND THE S&P 500 12 Source: FactSet (10/28/2011) Total Return 1-Year (%) 3-Year (%) 5-Year (%) |
WE ARE WELL POSITIONED TO CAPITALIZE ON A CHANGING ENVIRONMENT 13 • Diversified purchase model – Ability to increase purchases is a result of having capabilities across asset classes, age and balance • New operational initiatives – Insourcing of legal function over time will drive increasing margin contributions in the future • Robust consumer-level underwriting – Continue to develop new insights about our consumers while addressing a growing population of Spanish-speaking consumers • Lower-cost collection platform – Capture incremental value through increased low-cost collection activities in India and Costa Rica |
APPENDIX |
APPENDIX A: CUMULATIVE COLLECTIONS BY PORTFOLIO VINTAGE 15 Cumulative Collections through September 30, 2011 (000’s) Year of Purchase Purchase Price <2005 2005 2006 2007 2008 2009 2010 2011 Total CCM <2005 $385,474 $749,791 $224,620 $164,211 $85,333 $45,893 $27,708 $19,986 $12,084 $1,329,626 3.4 2005 192,585 66,491 129,809 109,078 67,346 42,387 27,210 14,850 457,171 2.4 2006 141,028 42,354 92,265 70,743 44,553 26,201 14,567 290,683 2.1 2007 204,099 68,048 145,272 111,117 70,572 35,566 430,575 2.1 2008 227,867 69,049 165,164 127,799 70,604 432,616 1.9 2009 253,401 96,529 206,773 131,861 435,163 1.7 2010 358,989 125,853 225,530 351,383 1.0 2011 249,284 70,036 70,036 0.3 Total $2,012,727 $749,791 $291,111 $336,374 $354,724 $398,303 $487,458 $604,394 $575,098 $3,797,253 1.9 |
APPENDIX B: RECONCILIATION OF ADJUSTED EBITDA 16 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 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 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 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 Depreciation and amortization 869 840 833 810 722 766 674 652 623 620 652 697 Amount applied to principal on receivable portfolios 28,259 29,452 26,114 29,498 40,212 35,785 35,140 46,364 42,851 48,303 49,188 47,384 Stock-based compensation expense 801 1,204 1,281 1,001 1,094 1,228 860 382 1,080 994 1,261 1,049 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 3/31/10 6/30/10 9/30/10 12/31/10 3/31/11 6/30/11 9/30/11 GAAP net income, as reported 10,861 11,730 12,290 14,171 13,679 14,775 15,370 Interest expense 4,538 4,880 4,928 5,003 5,593 5,369 5,175 Contingent interest expense - - - - - - - Pay-off of future contingent interest - - - - - - - Provision for income taxes 6,490 6,749 6,632 9,075 8,601 9,486 9,868 Depreciation and amortization 673 752 816 958 1,053 1,105 1,194 Amount applied to principal on receivable portfolios 58,265 64,901 63,507 53,427 85,709 83,939 73,187 Stock-based compensation expense 1,761 1,446 1,549 1,254 1,765 1,810 2,405 Adjusted EBITDA 82,588 90,458 89,722 83,888 116,400 116,484 107,199 |
APPENDIX C: THE COMPANY’S FINANCIAL RESULTS OVER THE PAST TWO YEARS HAVE BEEN STRONG 17 2010 2009 YOY Growth Annual Variance 604.6 116.8 24% 487.8 Collections 381.3 64.9 21% 316.4 Revenue 346.7 82.1 31% 264.6 Adjusted EBITDA* 362.0 105.3 41% 256.6 Purchases 1.95 0.58 42% 1.37 Diluted EPS ($M, except EPS and ratios) 575.2 346.7 340.1 250.1 1.71 YTD 9/30/10 455.4 281.5 262.8 242.9 1.39 YTD 9/30/11 |