Encore Capital Group, Inc. Q3 2013 EARNINGS CALL Exhibit 99.1 |
PROPRIETARY 2 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 “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 its most recent report on Form 10-K, and its subsequent reports on form 10-Q, each as it may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements. |
PROPRIETARY 3 ENCORE DELIVERED A RECORD QUARTER Estimated Remaining Collections of $4.0 billion * From continuing operations attributable to Encore ** Please refer to Appendix for reconciliation of Adjusted EPS, Adjusted EBITDA, and Adjusted Net Income to GAAP *** Cost to Collect is Adjusted Operating Cost / Dollars collected. See Appendix for reconciliation of Adjusted Operating Cost to GAAP Note: All Figures Include Cabot Credit Management UK results unless otherwise indicated $27 $22 40.7% $234 million $380 million $1.02 $0.82 million million GAAP EPS* Adjusted EPS** Collections Adjusted EBITDA** Adjusted Net Income** GAAP Net Income* Cost to Collect*** |
PROPRIETARY 4 YEAR TO DATE PERFORMANCE HAS BEEN STRONG * From continuing operations attributable to Encore ** Please refer to Appendix for reconciliation of Adjusted EPS, Adjusted EBITDA, and Adjusted Net Income to GAAP *** Cost to Collect is Adjusted Operating Cost / Dollars collected. See Appendix for reconciliation of Adjusted Operating Cost to GAAP Note: All Figures Include Cabot Credit Management UK results unless otherwise indicated $69 $53 38.9% $586 million $928 million $2.06 $2.74 million million Adjusted Net Income** Adjusted EPS** Adjusted EBITDA** Collections GAAP EPS* GAAP Net Income* Cost to Collect*** |
PROPRIETARY 5 OUR STRATEGIC MOVES ARE BEARING FRUIT Asset Acceptance Continued to move accounts to Encore - 835k in Q3 Collections were ahead of plan Expenses were under budget Cabot Credit Management Analysis well underway to expand into new market segments India team fully engaged – expect to be making calls into the UK in Q1 2014 Propel Now in 9 states First Nevada tax lien transfer executed Well positioned for industry consolidation |
6 GROWTH IN DEPLOYMENTS WAS LED BY THE ACQUISITION OF CABOT CREDIT MANAGEMENT PROPEL DEPLOYMENTS CABOT DEPLOYMENTS DEPLOYMENTS Market comments US direct-from-issuer pricing pressure remains, with consolidation among fewer, more stable buyers UK market dominated by a few large players UK issuer inventory backlog expected to come to market over the next few years PROPRIETARY |
PROPRIETARY 7 THE CABOT TRANSACTION RESULTED IN STRONG GROWTH IN ERC $M Encore ERC Asset Acceptance ERC Cabot ERC 2,519 1,780 1,911 1,967 1,890 1,983 1,724 1,503 4,022 2,741 961 Estimated Remaining Collections |
PROPRIETARY 8 OUR INTEGRATION PLAN FOR AACC REMAINS ON TRACK Jul Aug Sep Oct Nov Dec Jan Pre-close Jun Feb Mar Apr Support Function Rationalization Law Firm Management Internal Legal Platform Integration Finance Integration HR Integration IL Acct Placement and conversion Collection Agency Rationalization Call Center Rationalization Close Of AACC Transaction Internal Legal Launch Retention Agreements Synergy Identification Integration Planning |
PROPRIETARY PROPEL CONTINUES TO GROW AND CONTRIBUTE TO ENCORE 9 $100 million of capital deployed YTD Now operating in 9 states Funded first tax lien transfer in Nevada Operating Income Revenue Capital Deployed 0 10 20 30 40 50 60 70 Q1 Q2 Q3 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Q1 Q2 Q3 0.0 0.5 1.0 1.5 2.0 Q1 Q2 Q3 |
10 CABOT’S Q3 RESULTS WERE STRONG AND IN LINE WITH OUR INVESTMENT MODEL Adjusted EBITDA* $50.6 million Collections $67.4 Million Revenue $46.5 million Portfolio purchases $27.0 million Cost to Collect** 27.2% 120-Month Estimated Remaining Collections of $1.5 billion * Please refer to Appendix for reconciliation of Adjusted EBITDA to GAAP ** Cost to Collect is Adjusted Operating Cost / Dollar collected. See Appendix for reconciliation of Adjusted Operating Cost to GAAP PROPRIETARY |
PROPRIETARY OUR FOCUS AT CABOT IS TO BEGIN LEVERAGING OUR INDIA SITE DURING THE DAY HOURS IN Q1 2014 11 9/1 9/15 10/1 10/15 11/1 11/15 12/1 12/15 1/1 1/15 Where we are today Kick-off 2/1 2/15 Overall IT infrastructure readiness People selection & onboarding Onshore class room training Visa/ Travel readiness On the job training UAT Pilot team ‘Go-Live’ @ India Inventory identification Servicing/ Dialer strategy Legal & statutory compliance Cabot & Encore teams to develop pricing model ROADMAP – CABOT INDIA OPERATIONS LAUNCH |
PROPRIETARY REGULATORY DEVELOPMENTS CONTINUE TO HAVE A MEANINGFUL EFFECT ON THE INDUSTRY 12 Office of the Comptroller of the Currency (OCC) Debt Sales Best Practices Memo – 3Q13 Emphasizes importance of vendor management and procedures designed to reduce issuer risk Accelerated issuer audit programs Consumer Financial Protection Bureau (CFPB) Advanced Notice of Proposed Rulemaking (ANPR) – 4Q13 Notice of Proposed Rulemaking (NPR) – summer 2014 Final rulemaking late 2014 |
PROPRIETARY Regulators Encore Initiatives ENCORE HAS LONG SHARED REGULATORS’ VISION TO RAISE INDUSTRY STANDARDS 13 Consumer Credit Research Institute Consumer Bill of Rights Consumer Experience Council Enterprise Risk Management Benefit to consumers Regulatory clarity & balance Industry consolidation Stronger collections industry OCC CFPB Outcomes |
PROPRIETARY 14 ENCORE IS WELL POSITIONED TO MAINTAIN ITS MOMENTUM & CONTINUE DELIVERING TOP QUARTILE TSR 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 Sustained success at raising capital • Low cost of debt • Sustainable borrowing capacity and cash flow generation Prudent capital deployment 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 |
15 Detailed Financial Discussion |
PROPRIETARY 16 THE AACC AND CABOT ACQUISITIONS ACCELERATED Q3 COLLECTIONS 189 186 231 241 246 230 270 278 380 100 150 200 250 300 350 400 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 $M Core Collections 83 80 110 112 117 104 127 117 119 95 96 110 115 111 113 122 134 154 11 10 11 14 18 13 21 27 40 67 0 100 200 300 400 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 - Collection Sites - Legal Collections - Collection Agencies - Cabot $M |
PROPRIETARY STRONG COLLECTIONS LED TO SOLID REVENUE GROWTH 17 116 116 126 139 141 140 141 152 225 50 100 150 200 250 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 $M Revenue From Core Collections - |
PROPRIETARY 18 COLLECTION MULTIPLES CONTINUE TO INCREASE OVER TIME - 0.5 1.0 1.5 2.0 2.5 3.0 2009 2010 2011 2012 Expected Multiple at Purchase Current Multiple |
PROPRIETARY ENCORE’S COST TO COLLECT FULLY REFLECTS AACC’S AND CABOT’S OPERATIONS 19 * Cost to Collect is Adjusted Operating Cost / Dollar collected. See Appendix for reconciliation of Adjusted Operating Cost to GAAP. Channel Q3 2013 CTC Q3 2012 CTC Cabot 27.2% 24.5% Legal 39.6% 41.5% Core sites 8.4% 5.9% 44% 44% 38% 40% 41% 43% 37% 39% 41% 30% 40% 50% Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Overall Cost to Collect* |
PROPRIETARY AFTER SEVERAL QUARTERS OF INVESTMENT, COST TO COLLECT IN INTERNAL LEGAL IS DECLINING 20 0% 10% 20% 30% 40% 50% Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 0% 50% 100% Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 150% 300% 450% 80 100 120 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 - 15.0 30.0 45.0 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Legal Outsourcing Cost to Collect Internal Legal Cost to Collect Legal Outsourcing Collections Internal Legal Collections $M $M |
PROPRIETARY COLLECTIONS GROWTH AND COST IMPROVEMENTS LED TO IMPROVED CASH FLOWS 21 * Please refer to Appendix for reconciliation of Adjusted EBITDA to GAAP Adjusted EBITDA* 107 105 144 148 151 135 174 177 234 - 50 100 150 200 250 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 |
PROPRIETARY WE SAW IMPROVEMENT IN OUR EFFECTIVE TAX RATE 22 35.0% 5.2% (4.0%) 1.8% (4.8%) 1.1% (1.8%) 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Federal Provision State Provision State Benefit Changes in State Apportionment Tax Reserves International Provision Permanent Items Q3 Effective Rate 32.5% |
PROPRIETARY ENCORE’S Q3 ADJUSTED EPS SET A RECORD OF $1.02 PER FULLY DILUTED SHARE 23 $(0.05) Net income per diluted share from continuing operations attributable to Encore Net non-cash interest and issuance cost amortization, net of tax Acquisition related legal and advisory fees, net of tax Effect of tax credits applicable to prior periods Adjusted net income from continuing operations per diluted share attributable to Encore - (Accounting) Adjusted net income from continuing operations attributable to Encore - (Economic)* $0.82 $0.04 $0.18 $0.99 $1.02 * Please refer to Appendix for reconciliation of Adjusted EPS measurements to GAAP Note: the following slide contains additional detail |
– Issued $115 million of convertible bonds, due in 2017 – The bonds are convertible at $31.5625 – Purchased hedges to increase the effective conversion price to $44.1875 – The average price of Encore stock during Q3 2013 was $40.52 – Initial cost of warrants $11.6 million – Protected from 1.04 million shares of dilution Note: Non-GAAP economic EPS also removes non-cash interest expense from EPS numerator OUR CONVERTIBLE HEDGE HAS PROTECTED US FROM SIGNIFICANT ECONOMIC DILUTION 24 Impact of 3.00% Convertible due 2017 on Diluted Share Count Increase to Diluted Share Count = Q3 Applicable Share Price – Conversion Price Q3 Applicable Share Price Principal Amt Outstanding Conversion Price × ~805 Thousand Shares = $40.52 – $31.56 $40.52 $115 million $31.56 × $1.02 Adjusted EPS - economic Adjusted EPS - accounting $0.99 Q3 GAAP Fully Diluted Shares Outstanding 27.2 million (-) Shares from 2017 Bond Hedge 0.8 million Non-GAAP Economic Shares Outstanding 26.4 million $26.8 million Adjusted Income from Continuing Operations Attributable to Encore |
ENCORE’S OWNERSHIP OF CABOT REFLECTS THE MINORITY INTERESTS OF J.C. FLOWERS AND MANAGEMENT 25 50.1% 49.9% Not all entities depicted. 14.35% Employee Benefit Trust (Management) JFC III Europe Holdings L.P. (Cayman) Encore (US) Encore Europe Holdings s.a.r.l. (Lux) JFC III Europe s.a.r.l. (Lux) Janus Holdings s.a.r.l. (Lux) Cabot Holdings s.a.r.l. (Lux) Cabot Credit Management (UK) 42.9% economic ownership $177 million, consisting of: $165 million - PECs $12 million - shares 85.65% |
PROPRIETARY CABOT CONTRIBUTED $0.17 TO ENCORE’S Q3 RESULTS 26 In 000’s except per share amounts Janus Encore Europe Holdings EEH Consolidated Revenue / other income $46,568 - $46,568 Total Expenses (22,179) - (22,179) EBITDA 24,389 - 24,389 Depreciation and Amortization (1,461) - (1,461) Non-PEC Interest Expense (12,319) - (12,319) PEC Interest – JCF / Mgmt (5,877) - (5,877) PEC Interest – Encore (4,998) 4,998 - Total Interest (23,194) 4,998 (18,196) Earnings Before Income Tax (266) 4,998 4,731 Income tax (1,173) - (1,173) Net (loss) / profit before minority interest (1,440) 4,998 3,558 JCF / Mgmt non-controlling interest (822) - (822) Net (loss) / profit attributable to Encore (618) 4,998 4,380 |
PROPRIETARY 27 ENCORE’S LONG-TERM PROSPECTS CONTINUE TO BE FAVORABLE Operating Results & Deployment A culture of constant improvement drives improved results Liquidity & Capital Access Strong liquidity and access to capital enhance our ability to take advantage of consolidating markets and new opportunities Solid Cash Flows Additional asset classes and geographies continue to enhance ERC and collections Geographic & Asset Class Diversification We are an international company in several asset classes, positioned for strong earnings growth going forward |
28 Appendix |
PROPRIETARY 29 NON-GAAP FINANCIAL MEASURES This presentation includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company has included information concerning Adjusted EBITDA because management utilizes this information, which is materially similar to a financial measure contained in covenants used in the Company's revolving credit facility, in the evaluation of its operations and believes that this measure is a useful indicator of the Company’s ability to generate cash collections in excess of operating expenses through the liquidation of its receivable portfolios. The Company has included information concerning Adjusted Operating Expenses in order to facilitate a comparison of approximate cash costs to cash collections for the portfolio purchasing and recovery business in the periods presented. The Company has included Adjusted Income from Continuing Operations per Share because management believes that investors regularly rely on this measure to assess operating performance, in order highlight trends in the Company’s business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. Adjusted EBITDA, Adjusted Operating Expenses and Adjusted Income from Continuing Operations per Share have not been prepared in accordance with GAAP. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income and total operating expenses as indicators of the Company’s operating performance. Further, these non-GAAP financial measures, as presented by the Company, may not be comparable to similarly titled measures reported by other companies. The Company has attached to this presentation a reconciliation of these non- GAAP financial measures to their most directly comparable GAAP financial measures. |
PROPRIETARY September 30, 2013 2012 $ Per Diluted Share – Accounting Per Diluted Share – Economic $ Per Diluted Share – Accounting Per Diluted Share – Economic Net income from continuing operations attributable to Encore 22,194 $0.82 0.84 21,308 $0.82 $0.82 Adjustments: Net non-cash interest and issuance cost amortization, net of tax 1,103 $0.04 0.04 - - - Acquisition related legal and advisory fees, net of tax 4,775 $0.18 0.18 - - - Acquisition related integration and consulting fees, net of tax - - - - - - Effect of tax credits applicable to prior periods (1,236) (0.05) (0.05) - - - Adjusted net income from continuing operations attributable to Encore 26,836 $0.99 $1.02 $21,308 $0.82 0.82 30 RECONCILIATION OF ADJUSTED EPS Reconciliation of Adjusted EPS to GAAP EPS (Unaudited, in thousands, except per share amounts), Three Months Ended |
PROPRIETARY 31 RECONCILIATION OF ADJUSTED EPS Reconciliation of Adjusted EPS to GAAP EPS (Unaudited, in thousands, except per share amounts), Nine Months Ended September 30, 2013 2012 $ Per Diluted Share – Accounting Per Diluted Share – Economic $ Per Diluted Share – Accounting Per Diluted Share – Economic Net income from continuing operations attributable to Encore 52,654 $2.06 2.08 58,404 $2.25 $2.25 Adjustments: Net non-cash interest and issuance cost amortization, net of tax 2,103 0.08 0.08 - - - Acquisition related legal and advisory fees, net of tax 9,756 0.38 0.39 2,567 0.10 0.10 Acquisition related integration and consulting fees, net of tax 5,502 0.22 0.22 - - - Effect of tax credits applicable to prior periods (712) (0.03) (0.03) - - - Adjusted net income from continuing operations attributable to Encore 69,303 $2.71 $2.74 $60,971 $2.35 $2.35 |
PROPRIETARY Note: The periods 6/30/08 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. 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 12,290 14,171 13,679 (Gain) loss from discontinued operations, net of tax (89) 46 (483) (457) (365) (410) (901) (687) (684) (315) 28 (397) Interest expense 4,831 5,140 5,401 4,273 3,958 3,970 3,959 4,538 4,880 4,928 5,003 5,593 Provision for income taxes 4,161 2,429 (1,781) 5,670 3,936 5,676 4,078 6,080 6,356 6,474 9,057 8,349 Depreciation and amortization 482 396 391 410 402 443 516 522 591 650 789 904 Amount applied to principal on receivable portfolios 35,785 35,140 46,364 42,851 48,851 49,188 47,384 58,265 64,901 63,507 53,427 85,709 Stock-based compensation expense 1,288 860 382 1,080 994 1,261 1,049 1,761 1,446 1,549 1,254 1,765 Adjusted EBITDA 52,560 47,039 48,179 62,824 63,869 69,132 64,490 81,340 89,220 89,083 83,729 115,602 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12 9/30/12 12/31/12 3/31/13 6/30/13 9/30/13 GAAP net income, as reported 14,775 15,310 17,134 11,406 16,598 21,308 20,167 19,448 11,012 21,064 (Gain) loss from discontinued operations, net of tax (9) (60) 101 6,702 2,392 - - - - 308 Interest expense 5,369 5,175 4,979 5,515 6,497 7,012 6,540 6,854 7,482 29,186 Provision for income taxes 9,475 9,834 10,418 11,660 12,846 13,887 13,361 12,571 7,267 10,272 Depreciation and amortization 958 1,054 1,165 1,240 1,420 1,533 1,647 1,846 2,158 4,523 Amount applied to principal on receivable portfolios 83,939 73,187 69,462 104,603 101,813 105,283 90,895 129,487 131,044 157,262 Severance and Stock-based compensation expense 1,810 2,405 1,729 2,266 2,539 1,905 2,084 3,001 5,455 3,983 Acquisition related expense - - - 489 3,774 - - 1,276 12,757 7,752 Adjusted EBITDA 116,317 106,905 104,988 143,881 147,877 150,928 134,694 174,483 177,175 234,350 Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In Thousands) Three Months Ended 32 RECONCILIATION OF ADJUSTED EBITDA |
PROPRIETARY Reconciliation of Adjusted EBITDA to GAAP net income (Unaudited, In Thousands) Three Months Ended 33 RECONCILIATION OF ADJUSTED EBITDA - CABOT September 30, 2013 GAAP net income attributable to Encore Europe Holdings s.a.r.l. 4,380 Loss from noncontrolling interest (822) GAAP net income 3,558 Adjustments: Interest expense 18,196 Provision for income taxes 1,174 Depreciation and amortization 1,461 Amount applied to principal on receivable portfolios 26,235 Adjusted EBITDA 50,624 |
PROPRIETARY Reconciliation of Adjusted Operating Cost to GAAP Operating Cost (Unaudited, In Thousands) Three Months Ended 34 RECONCILIATION OF ADJUSTED OPERATING COST 9/30/11 12/31/11 3/31/12 6/30/12 9/30/12 12/31/12 3/31/13 6/30/13 9/30/13 GAAP total operating expenses, as reported 89,804 97,048 91,394 102,809 103,621 103,872 105,872 126,238 174,429 Adjustments: Stock-based compensation expense (2,405) (1,729) (2,266) (2,539) (1,905) (2,084) (3,001) (2,179) (3,983) Operating expense related to other operating segments (4,622) (13,409) - (1,513) (2,055) (2,113) (3,022) (3,504) (8,008) Acquisition related integration and consulting fees and severance costs - - - - - - - (5,455) - Acquisition related legal and advisory fees - - (489) (3,774) - - (1,276) (6,948) (7,752) Adjusted operating expenses for the portfolio purchasing and recovery business 82,777 81,910 88,639 94,983 99,661 99,675 98,573 108,152 154,686 |
PROPRIETARY Reconciliation of Adjusted Operating Cost to GAAP Operating Cost (Unaudited, In Thousands) Three Months Ended 35 RECONCILIATION OF ADJUSTED OPERATING COST - CABOT September 30, 2012 September 30, 2013 GAAP total operating expenses, as reported $17,735 $23,640 Adjustments: Operating expense related to other operating segments (4,301) (5,280) Adjusted operating expenses for the portfolio purchasing and recovery business $13,434 $18,360 |
Encore Capital Group, Inc. Q3 2013 EARNINGS CALL |