EX-99.1 2 d582113dex991.htm EX-99.1

Encore Capital Group, Inc. Q2 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 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 3 ENCORE CONTINUED ITS STRONG PERFORMANCE ACROSS ALL KEY FINANCIAL METRICS Adjusted EPS* $0.85 Collections $278 million Adjusted EBITDA* $177 million Cost to Collect** 38.8% Estimated Remaining Collections of $2.7 billion * Please refer to Appendix for reconciliation of Adjusted EPS, Adjusted EBITDA, and Adjusted Income to GAAP GAAP EPS $0.44 ** Cost to Collect is Adjusted Operating Cost / Dollar collected. See Appendix for definition of Adjusted Operating Cost. GAAP Income $11 million Adjusted Income* $21 million

PROPRIETARY 4 WE MADE SEVERAL IMPORTANT STRATEGIC MOVES Asset Acceptance Largely satisfies our 2013 purchasing goals Better returns than we would have achieved in the market Cabot Credit Management Leading player in the UK debt recovery market Pent up supply expected to come to the market over the next 2-3 years Will leverage the use of our India call center Placement of $172.5M of 7-year convertible notes at 3% Provides long-term financing at a favorable rate Includes an additional $22.5 million of underwriters’ overallotment, which was recently exercised

PROPRIETARY 5 OUR CAPITAL DEPLOYMENT WAS VERY STRONG

PROPRIETARY 6 WHICH LED TO SIGNIFICANT GROWTH IN ERC

PROPRIETARY WE ARE EXECUTING ON OUR PLAN FOR A SEAMLESS INTEGRATION WITH AACC 7 Jul Aug Sep Oct Retention Agreements Synergy Identification Integration Planning Nov Dec Jan Pre-close Jun Call Center Rationalization Support Function Rationalization Law Firm Management Internal Legal Platform Integration Finance Integration HR Integration Consolidated Internal Legal Platform Close Of AACC Transaction Collections Agency Rationalization

PROPRIETARY PROPEL CONTINUES TO GROW AND CONTRIBUTE TO ENCORE Q3 & Q4 - growing operating income 8 $60 million capital deployed Q1 & Q2 - heavy marketing expenditures

PROPRIETARY 9 ON JULY 1 ST , WE CLOSED THE CABOT CREDIT MANAGEMENT TRANSACTION Pent up supply from issuers in the UK is expected to come to market over the next 2-3 years Expect to leverage Encore’s expertise in secondary and tertiary collections Developing a plan to utilize Encore’s India operational capacity during the day ERC has just surpassed £1 billion

PROPRIETARY THERE HAVE BEEN MANY DEVELOPMENTS ON THE REGULATORY FRONT 10 Office of the Comptroller of the Currency (OCC) Consumer Financial Protection Bureau (CFPB) Statement on Oversight of Debt Collection and Debt Sales Oversight of original issuers Sample letters to assist consumers in collection process

PROPRIETARY 11 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

PROPRIETARY 12 Detailed financial discussion

PROPRIETARY WE HAVE PRELIMINARILY COMPLETED THE PURCHASE PRICE ALLOCATION FOR AACC 13 Purchase Price Cash $316,485 Stock 62,352 Total $378,837 Allocation Cash $23,156 Investment in receivable portfolios, net 381,233 Deferred court costs, net 6,141 Property plant and equipment, net 11,003 Other assets 19,629 Liabilities assumed (132,166) Identifiable intangible assets 1,490 Goodwill 68,351 Total net assets acquired $378,837 (Amounts in $ thousands)

PROPRIETARY 14 DESPITE LOW PURCHASING IN Q1 AND Q2, COLLECTIONS IN THE QUARTER WERE STRONG

PROPRIETARY STRONG COLLECTIONS LED TO SOLID REVENUE GROWTH 15 Revenue From Core Collections

WE CONTINUE TO MAKE IMPROVEMENTS IN OUR COST TO COLLECT 16 Overall Cost to Collect* Site CTC* * Cost to Collect is Adjusted Operating Cost / Dollar collected. See Appendix for definition of Adjusted Operating Cost. PROPRIETARY

PROPRIETARY AFTER SEVERAL QUARTERS OF INVESTMENT, COST TO COLLECT IN INTERNAL LEGAL IS DECLINING 17 * Cost to Collect is Adjusted Operating Cost / Dollar collected. See Appendix for definition of Adjusted Operating Cost.

PROPRIETARY COLLECTIONS GROWTH AND COST IMPROVEMENT LED TO IMPROVED CASH FLOWS 18 Adjusted EBITDA* * Please refer to Appendix for reconciliation of Adjusted EBITDA to GAAP

PROPRIETARY WITHOUT THESE ONE-TIME EXPENSES, EPS WAS STRONG 19

PROPRIETARY ON THE FINANCING FRONT, WE COMPLETED A CONVERTIBLE NOTE OFFERING ON FAVORABLE TERMS 20 Term Coupon Convertible Terms Initial Offering Size Additional market interest Underwriters’ Overallotment Total offering Conversion price Capped calls strike price 7 years 3% $115.0 million $35.0 million $22.5 million $172.5 million $45.72 $61.55 7 years 3% $115.0 million $35.0 million $22.5 million $172.5 million $45.72 $61.55

PROPRIETARY WE CONTINUE TO BE SUBSTANTIALLY (1.9x) OVER COLLATERALLIZED ON OUR DEBT 21 Estimated Remaining Net Collections ($M, Q2 2013) * Net Debt = Total Debt (Excluding Propel Facilities plus convertible debt discount) minus Cash ** DTL = Deferred Tax Liability Gross ERC Cost to Collect at 30% Tax Net ERC Net Debt * + DTL **

PROPRIETARY 22 WE CONTINUE TO EXPAND OUR CREDIT FACILITY TO SUPPORT OUR GROWTH

PROPRIETARY 23 ENCORE’S LONG-TERM PROSPECTS CONTINUE TO BE FAVORABLE Operating Results & Deployment Operating results and deployment continue to be strong Liquidity & Capital Access Strong liquidity and access to capital enhance our ability to take advantage of market opportunities Solid Cash Flows As we build ERC and continue to execute efficiently, we expect solid cash flows to continue Geographic & Asset Class Diversification Our geographic and asset class diversification will position us for strong earnings growth going forward

PROPRIETARY 24 APPENDIX

PROPRIETARY 25 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 26 RECONCILIATION OF ADJUSTED EPS TO GAAP EPS

PROPRIETARY Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In Thousands) Three Months Ended 27 RECONCILIATION OF ADJUSTED EBITDA

PROPRIETARY Reconciliation of Adjusted Operating Cost to GAAP Operating Cost (Unaudited, In Thousands) Three Month Ended 28 RECONCILIATION OF ADJUSTED OPERATING COST Three Months Ended June 30, 2013 GAAP total operating expenses, as reported $126,238 Adjustments: Stock-based compensation expense (2,179) Tax lien business segment operating expenses (3,504) Acquisition related legal and advisory fees (6,948) Acquisition related integration and severance costs, and consulting fees (5,455) Adjusted operating expenses $108,152