![]() ENCORE CAPITAL GROUP, INC. June 12, 2013 William Blair & Company 33rd Annual Growth Stock Conference Exhibit 99.1 |
![]() PROPRIETARY 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 “will,” “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, earnings per share, 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. |
![]() PROPRIETARY ENCORE IS A LEADING PLAYER IN THE CONSUMER DEBT BUYING AND RECOVERY INDUSTRY 3 We deploy capital to acquire delinquent consumer receivables... • Purchaser of defaulted consumer credit portfolios & delinquent tax liens • Work with consumers to help them repay their obligations over time • Employ analytics to segment consumers on an individual basis • Have relationships with 1 in 7 American consumers • Collected $987M in total cash collections TTM through Q12013 ... and generate predictable cash flows over a multi-year time horizon Total Cash Collections Portfolio Purchase Price Illustrative yearly cash collections Years 1-2 Years 3-4 Years 5-6 Years 7-8 2-3x |
![]() PROPRIETARY ENCORE PROVIDES A PRINCIPLED AND ESSENTIAL SERVICE Contingency collection agency Collection time frame • 4-6 months Consumer experience Pressure • Artificial deadlines • Multiple exchanges of sensitive data • Counter productive incentives Outcome • Consumer is confused and frustrated 4 • 84 months to recover financially Partnership • Create partnership strategy and set goals • Tailor solutions to individuals • Single point of contact • Maximizes repayment likelihood, and ensures fair treatment vs. Relationship is transactional • Attempt to collect during initial delinquency cycle • Consumer is "charged- off" by issuer on day 181 of cycle • No longer considered a 'customer' by creditor Original creditor |
![]() PROPRIETARY OUR BUSINESS PRINCIPLES ARE BUILT ON TREATING CONSUMERS FAIRLY AND WITH RESPECT 5 Understanding our consumers • Acknowledging limitations of our consumers’ household balance sheets to align recovery plans • Deploying specialized surveys to test consumer satisfaction Making focused investments • Built specialized non-collections work groups to serve consumer needs • Established Consumer Credit Research Institute to better understand the financially stressed consumer Improving consumer experience • Living the Consumer Bill of Rights • Creating resources and directing financially stressed consumers to best external references • Founded Consumer Experience Council |
![]() PROPRIETARY ENCORE HAS DELIVERED A TRACK RECORD OF STRONG, SUSTAINABLE FINANCIAL RESULTS 6 +22% -1100 BPS +27% +42% Cash Collections ($M) Cost to Collect (%) Adjusted EBITDA ($M) Earnings Per Share ($) Strong business fundamentals... ...driving profitable growth 1 2 1. Adjusted EBITDA is a non-GAAP number which the Company considers to be and utilizes as a meaningful indicator of operating performance See Reconciliation of Adjusted EBITDA to GAAP Net Income at the end of this presentation. 2. Per Fully Diluted Share from Continuing Operations Note: Growth rate percentages for Cash Collections, Adjusted EBITDA, and EPS signify compounded annual growth rate from 2007 - 2012 |
![]() PROPRIETARY AND HAS CONTINUED TO BUILD UPON THIS PERFORMANCE WITH STRONG RESULTS THIS YEAR Q1 2013 Q1 2012 Increase/ (Decrease) Collections $270 $231 17% Revenue $144 $126 14% Cost to collect 36.5% 38.4% (190 bps) Adjusted EBITDA $174 $144 21% EPS $0.86 $0.70 23% 7 Year over year financial results 1 2 1. Adjusted EBITDA is a non-GAAP number which the Company considers to be and utilizes as a meaningful indicator of operating performance See Reconciliation of Adjusted EBITDA to GAAP Net Income at the end of this presentation. 2. Excludes one-time deal costs and non-cash convert interest |
![]() PROPRIETARY 1,967 1,571 1,389 1,160 1,063 892 0 500 1,000 1,500 2,000 ($M) 2012 2011 2010 2009 2008 2007 WE HAVE RAPIDLY GAINED SCALE AND POSITIONED THE COMPANY FOR SUSTAINED GROWTH 8 Note: Excludes the ~$1B in ERC of AACC; Also excludes £908M in ERC of Cabot at year end 2012 of which Encore would have had a 42.8% economic interest Estimated Remaining Collections in core receivables +17% |
![]() PROPRIETARY 200 400 600 0 ($M) 2012 562 2011 387 2010 362 2009 257 2008 230 2007 209 THIS SCALE HAS BEEN CREATED BY MARKET LEADING INVESTMENTS 9 Capital deployed in core receivables +22% |
![]() PROPRIETARY WE HAVE DELIVERED INDUSTRY LEADING TOTAL SHAREHOLDER RETURN OVER THE PAST 5 YEARS 10 Total Shareholder Return (Dec. 2007-Dec. 2012) 1. Top Quartile tracks the dollar weighted average of the companies which fall in the 70th – 80th percentile range of the S&P 500 0 100 200 300 2010 2009 2008 2013 2012 2011 10% S&P Top Quartile 1 : (2%) Nasdaq Finance: 26% Encore Capital: 2% S&P Index: (%) |
![]() WE ARE WELL POSITIONED TO MAINTAIN OUR MOMENTUM AND CONTINUE DELIVERING TOP QUARTILE TSR 11 Management Team • Learning Organization • Principled Intent Growth, Margin Expansion, Free Cash Flow, PE Multiple Expansion Top Quartile Total Shareholder Return PROPRIETARY • Consumer intelligence • Data driven, predictive modeling • Portfolio valuation at consumer level • Consumer Credit Research Institute Superior Analytics 1 • Specialized call centers • Efficient international operations • Internal legal platform Operational Scale & Cost Leadership 2 • Sustained success at raising capital Low cost of debt Sustainable borrowing capacity and cash flow generation • Prudent capital deployment Strong Capital Stewardship 3 • Uniquely scalable platform • Strategic investment opportunities in near- in geographic and paper type adjacencies Extendable Business Model 4 |
![]() PROPRIETARY OUR SUPERIOR ANALYTICS STEM FROM OUR INVESTMENTS TO BETTER UNDERSTAND CONSUMERS... 12 Industrialized behavioral science R&D that includes field experiments and new theory development Reporting and alerts Basic consumer segmentation and targeting Statistical analysis and forecasting Simple models to increase collection returns Predictive modeling and optimization Advanced models focused on consumer behavior and financial ability 2001 2005 2012 |
![]() Encore’s individual underwriting approach to portfolio valuation accommodates our specialized operational strengths Low willingness Low ability High willingness High capability High willingness Moderate capability High willingness Low capability Low willingness High ability Low willingness Moderate ability ...WHICH IS CLEARLY SEEN IN OUR APPROACH TO CONSUMER LEVEL PORTFOLIO VALUATION 13 PROPRIETARY Strong partnership and recovery opportunities Enforce legal contract through formal channels Payment plans and opportunities to build longer relationships Significant discounts and many small payments Remind consumers through legal messaging Hardship strategies and removal from the collections process |
![]() THROUGH OUR INVESTMENTS IN ANALYTICS OUR EFFECTIVENESS HAS INCREASED BY 11% 14 Improved liquidation in our call center channel 1. Of like portfolios through call center channel 2. 2008 = 100 Note: Assumes 8% marginal cost to collect through call center channel, 40% tax rate, 2.3x CCM, 25M diluted shares outstanding PROPRIETARY • In 2012, we collected $442M through our call center channel • In 2008, we would have only collected $398M • ~$44M collections • ~$0.50 Impact of 11% improvement in liquidation (2008-2012) 111 100 80 90 100 110 120 2012 Vintage 2008 Vintage Indexed liquidation rate 2 +11% 1 in incremental EPS in incremental cash |
![]() PROPRIETARY 36.5 40.4 42.2 43.7 47.6 50.2 51.5 2007 Q1 2013 2012 2011 2010 2009 2008 Internal Legal investments WE HAVE THE INDUSTRY LEADING COST PLATFORM, DRIVEN BY CONTINUING OPERATIONAL IMPROVEMENTS 15 Increased specialization in call centers Scaling Indian call center Improving analytics Overall Cost to Collect (%) |
![]() PROPRIETARY • Debt is our working capital – Capital deployment business which generates strong cash flows EFFICIENT CAPITAL STEWARDSHIP IS CRITICAL TO ENCORE'S SUCCESS 16 • Strong cash flow allows for TSR driving investments Reinvest in wide range of receivables Return capital to shareholders when it is highest return option External capital • Reinvest in core • Adjacent Spaces • Return to shareholders Cash flow Collections process Portfolio purchases Prudent investment in adjacencies to supplement core growth |
![]() PROPRIETARY 3,000 2,000 1,000 0 ($M) 2007 2008 2009 2010 2011 2012 Q1 2013 w/AACC Net Debt. 1 Estimated Remaining Collections (ERC) vs. Net Debt WE HAVE A STRONG ABILITY TO QUICKLY RAISE CAPITAL WHICH IS SUPPORTED BY OUR ESTIMATED REMAINING COLLECTIONS 17 1. Includes revolver, senior, and net convertible debt less cash 2. Assumes liquidation cost to collect of 30% and a tax rate of 39.2%; Q1 2013 values as of 10-q filings; Assumes pro forma $1B of ERC from AACC Gross ERC less Cost to Collect and Taxes 2 Gross ERC |
![]() PROPRIETARY Actual cash collections 0 2,000 4,000 6,000 ($M) Initial projections WE BELIEVE THAT OUR CURRENT ESTIMATE OF REMAINING COLLECTIONS IS CONSERVATIVE 18 Cumulative Collections - initial expectation vs. actual |
![]() PROPRIETARY OUR ABILITY TO RAISE ADDITIONAL CAPITAL ALLOWS US TO PURSUE SUPPLEMENTAL GROWTH IN ADJACENT SPACES 19 ...and structure our debt to maximize flexibility for future growth – No impact on ability to purchase core US receivables • Propel facilities are incremental to, and separate from, our core debt facilities • We will continue to pursue and deploy separate pools of capital Note: Core debt includes revolver, term loan, Prudential notes, and convertible notes plus accordion 1,275 300 Separate Propel facilities We have the debt markets expertise to fund new opportunities... 1,500 1,000 500 0 Total debt availability ($M) Current 975 2007 330 Core debt |
![]() PROPRIETARY OUR CAPITAL DEPLOYMENT STRATEGY FOCUSES ON DELIVERING ATTRACTIVE AND SUSTAINABLE TOTAL SHAREHOLDER RETURN 20 All investments viewed through lens of Total Shareholder Return Deployment priorities Reinvestments in core receivables business • All investments bound by IRR guidelines • Maintain operational flexibility with a range of core asset classes Principles for capital deployment Investments in near-in adjacent spaces • Prudent investment in adjacent spaces which leverage our core competencies Return of capital to shareholders • Recognize there are times when best investment is to return cash |
![]() New asset classes Bankrupt accounts Outsourcing services International Secured assets Performing assets WE HAVE PURSUED DEALS AND INITIATIVES THAT ALIGN WITH OUR CORE BUSINESS Expand geographically Focus on bankruptcy Cover different type of debt PROPRIETARY 21 $83.6M investment in BK paper in 2012 |
![]() 22 THE ASSET ACCEPTANCE DEAL IS WELL ALIGNED WITH OUR STRATEGY AND ADDS $1 BILLION TO OUR ERC Largely satisfies our 2013 purchasing goals with attractive vintages Allows us to be selective in purchases for the remainder of the year Able to leverage best practices across the two platforms to drive synergies PROPRIETARY |
![]() PROPRIETARY 80 60 40 20 0 Cash Collections ($M) 100 0 300 200 Cash Collections ($M) WE HAVE A STRONG TRACK RECORD ACQUIRING PORTFOLIOS FROM OTHER DEBT PURCHASERS SIMILAR TO AACC 23 $90M portfolio purchased in 2005 $100+M portfolio purchased in 2012 Initial expectations: $59M Results to date: $77M Initial expectations: $199M Results to date: $237M 2005 2007 2009 2011 Jun-12 Sep-12 Dec-12 Mar-13 2013 |
![]() PROPRIETARY WE CAN LEVERAGE OUR PLATFORM AND CAPABILITIES TO REALIZE SUBSTANTIAL SYNERGY VALUE AT AACC Lower cost structure: Leverage Encore's lower cost platform to expand margins on cash collections Match Encore's lower collection cost in 9 months Internal legal collections: Integrate AACC's strong internal legal platform to drive additional overall operating efficiencies Accelerate migration to internal legal platform by ~2 years Source of value Impact Deeper consumer insight and analytics: More focused segmentation and targeting, resulting in better collections CCM target of ~2.0 – 2.5x 24 1 2 3 |
![]() WE HAVE MADE SIGNIFICANT PROGRESS EXECUTING OUR PLANS FOR PROPEL 25 Our plan Existing market • Working to penetrate the 80% of the Texas market that doesn't use tax lien transfers What we've delivered • Developed & implemented model for direct mailing • Started outbound calling w/existing Encore facilities • Lobbying to introduce legislation in other states that will create new markets • Successfully worked with Nevada to pass legislation • Advancing legislative push to other states • Purchased tax lien certificates in three states New opportunities • Exploring alternative tax lien models that will allow us to expand into new markets New markets PROPRIETARY |
![]() PROPRIETARY RESULTING IN GROWTH IN THE SIZE OF OUR PORTFOLIO WHILE MAINTAINING AN EXCEPTIONALLY LOW RISK PROFILE 26 • $8,750 average balance • 8-year term • 6-year weighted average life • 13-15% typical interest rate Texas portfolio characteristics • $230,000 average property value • 4.6% average LTV at origination • 1.0% foreclosure rate • Zero losses Propel portfolio size 154 137 121 99 0 100 200 Q1 2013 2012 2011 2010 ($M) |
![]() PROPRIETARY Market leader in U.K. debt management • Over 14 years of collections growth • Operations in Great Britain and Ireland Specializes in higher balance, “semi- performing” (i.e., paying) accounts • Favorable repayment characteristics Key statistics as of March 31, 2013: • £7.7B face-value of debt acquired for £706M • ERC = £934M • 3.6M customer accounts • 2012 collections = £161M • 2012 capital deployment = £130M 1 Cabot was the leading purchaser of debt in the U.K. in 2012 CABOT IS THE LEADING PURCHASER OF DEBT IN THE U.K. 1. £31M funded by Anacap For FY 2012 27 91 42 0 50 100 150 (£M) Arrow Lowell Cabot 130 1 |
![]() PROPRIETARY ENCORE PROVIDES CABOT WITH SEVERAL SYNERGY OPPORTUNITIES • Enhance collections by leveraging Encore's efficient operations, including our operations in India • Leverage Encore's experience in secondary and tertiary debt to pursue new investments in the U.K. • Leverage Encore’s favorable financing to fund growth • Deploy Encore's superior analytical capabilities to the Cabot platform • Focus on improving account segmentation and specialized collection strategies 28 Leverage Encore's analytics Leverage Encore's operations and know- how Invest in different segments |
![]() PROPRIETARY ENCORE'S ACQUISITION OF CABOT WILL PROVIDE A VEHICLE TO CONTINUE ITS STRONG EARNINGS GROWTH Growing market Encore can deploy capital in a growing market Profitable market Portfolio IRRs are strong and favorable Timeline Deal expected to close in Q3 of 2013 Encore EPS Supports Encore's 15% long-term EPS growth 29 1 1. Calculation of EPS excludes one-time transaction and integration costs and non-cash interest associated with the Company’s 2012 convertible debt offering. For forward-looking EPS projections, such one-time costs or charges are not presently quantified |
![]() WE ARE WELL POSITIONED TO MAINTAIN OUR MOMENTUM AND CONTINUE DELIVERING TOP QUARTILE TSR 30 Management Team • Learning Organization • Principled Intent Growth, Margin Expansion, Free Cash Flow, PE Multiple Expansion Top Quartile Total Shareholder Return • Specialized call centers • Efficient international operations • Internal legal platform Operational Scale & Cost Leadership 2 Low cost of debt Sustainable borrowing capacity and cash flow generation Strong Capital Stewardship 3 • Consumer intelligence • Data driven, predictive modeling • Portfolio valuation at consumer level • Consumer Credit Research Institute Superior Analytics 1 • Uniquely scalable platform • Strategic investment opportunities in near- in geographic and paper type adjacencies Extendable Business Model 4 PROPRIETARY Prudent capital deployment Sustained success at raising capital |
![]() PROPRIETARY 31 APPENDIX |
![]() PROPRIETARY RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In Thousands) Three Months Ended Note: The periods 3/31/08 through 12/31/08 have been adjusted to reflect the retrospective application of ASC 470-20. All periods have been adjusted to show discontinued ACG operations. PROPRIETARY 32 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 GAAP net income, as reported 6,751 6,162 3,028 (2,095) 8,997 6,641 9,004 8,405 10,861 11,730 12,290 14,171 (Gain) loss from discontinued operations, net of tax (422) (89) 46 (483) (457) (365) (410) (901) (687) (684) (315) 28 Interest expense 5,200 4,831 5,140 5,401 4,273 3,958 3,970 3,959 4,538 4,880 4,928 5,003 Contingent interest expense - - - - - - - - - - - - Pay-off of future contingent interest - - - - - - - - - - - - Provision for income taxes 4,227 4,161 2,429 (1,781) 5,670 3,936 5,676 4,078 6,080 6,356 6,474 9,057 Depreciation and amortization 438 482 396 391 410 402 443 516 522 591 650 789 Amount applied to principal on receivable portfolios 40,212 35,785 35,140 46,364 42,851 48,303 49,188 47,384 58,265 64,901 63,507 53,427 Stock-based compensation expense 1,094 1,228 860 382 1,080 994 1,261 1,049 1,761 1,446 1,549 1,254 Adjusted EBITDA 57,500 52,560 47,039 48,179 62,824 63,869 69,132 64,490 81,340 89,220 89,083 83,729 3/31/11 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12 9/30/12 12/31/12 3/31/13 GAAP net income, as reported 13,679 14,775 15,310 17,134 11,406 16,596 21,308 20,167 19,448 (Gain) loss from discontinued operations, net of tax (397) (9) (60) 101 6,702 2,392 - - - Interest expense 5,593 5,369 5,175 4,979 5,515 6,497 7,012 6,540 6,854 Provision for income taxes 8,349 9,475 9,834 10,418 11,660 12,846 13,887 13,361 12,571 Depreciation and amortization 904 958 1,054 1,165 1,240 1,420 1,533 1,647 1,846 Amount applied to principal on receivable portfolios 85,709 83,939 73,187 69,462 104,603 101,813 105,283 90,895 129,487 Stock-based compensation expense 1,765 1,810 2,405 1,729 2,266 2,539 1,905 2,084 3,001 Acquisition related expense - - - - 489 3,774 - - 1,276 Adjusted EBITDA 115,602 116,317 106,905 104,988 143,881 147,877 150,928 134,694 174,483 |