Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q4 2019 Earnings Presentation
38 slides from Encore Capital's earnings presentation, Feb 26, 2020
Slide 1: Encore Capital Group, Inc. Q4 2019 Earnings Call
Exhibit 99.1 Encore Capital Group, Inc. Q4 2019 EARNINGS CALL
Slide 2: Cautionary Note About Forward-Looking Statements
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS The statements in this presentation that are not achievements of the Company and its subsidiaries historical facts, including, most importantly, those to be materially different from any future results, statements preceded by, or that include, the wor
Slide 3: 2019 Accomplishments
2019 ACCOMPLISHMENTS Estimated Remaining Global Collections Global Revenue1 U.S. Portfolio Purchases Collections (ERC) $2.03B $1.40B $7.7B $682M up 3% up 3% up 8% up 7% Record Record Record Record GAAP EPS2 GAAP Net Income2 Economic EPS3 Adjusted Income3 $5.33 $168M $5.95 $187M up 31% up 45% up 19%
Slide 4: Fourth Quarter 2019 Financial Highlights
FOURTH QUARTER 2019 FINANCIAL HIGHLIGHTS Global Collections Global Revenue1 ERC $499M $348M $7.7B up 3% flat up 8% GAAP EPS2 GAAP Net Income2 Economic EPS3 Adjusted Income3 $1.36 $43.1M $1.56 $49.2M down 9% down 8% up 8% up 8% Our Q4 2018 GAAP earnings included ~$6M, or $0.21 per share, of non-recur
Slide 5: Adjusted EBITDA reflects strong cash generation
OUR ADJUSTED EBITDA REFLECTS OUR STRONG CASH GENERATION, WHICH WE EXPECT WILL CONTINUE TO GROW IN 2020 Adjusted EBITDA + Collections applied to principal balance Encore Adjusted(Trailing EBITDA 12-Months, - in Trailing $M) 12-Months $1,200 $1,000 $800 $600 $400 $200 $0 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Slide 6: Record collections and reduced cost-to-collect produce operating leverage (MCM U.S.)
RECORD COLLECTIONS IN 2019 COUPLED WITH CONTINUED REDUCTION IN COST-TO-COLLECT HAS PRODUCED STRONG OPERATING LEVERAGE MCM (U.S.) Business MCM Collections by Channel and CTC U.S. deployments totaled a 44.2% 42.4% record $682M in 2019, up 7% 40.3% from 2018 $1,316M Initial purchase price multiple
Slide 7: Cabot purchasing portfolios at higher returns while reducing leverage
CABOT IS PURCHASING PORTFOLIOS AT HIGHER RETURNS AND MAINTAINING A RECORD ERC LEVEL WHILE REDUCING DEBT LEVERAGE Cabot (Europe) Business 2019 DP Portfolio purchases totaled $307M in 2019, at returns Collections1 that were 150-200 basis points higher than in 2018 $635M ERC of $3.8B was up slightl
Slide 8: Steady progress on three strategic priorities
WE CONTINUE TO MAKE STEADY PROGRESS ON THREE STRATEGIC PRIORITIES AIMED AT BUILDING SHAREHOLDER VALUE Market Concentrating on the valuable U.S. and U.K. markets, where scale helps us Focus achieve our highest risk-adjusted returns Competitive Innovating to enhance our competitive Advantage advantage
Slide 9: Market Focus: major focus on the U.S. and U.K.
Market OUR MAJOR FOCUS IS ON OUR MOST Focus VALUABLE MARKETS - THE U.S. AND U.K. Global Deployment in 2019 Accomplishments Continental Other Europe 1% ► Deployed record $682M in 6% U.S. in 2019, up 7% compared to 2018 ► Divested our interest in United Kingdom Refinancia (Colombia & 24% Peru) in Dece
Slide 10: Market-leading scale in our core markets
Market WE HAVE MARKET-LEADING SCALE IN Focus OUR CORE MARKETS Leading ERC across U.S. and U.K.1 US$M 7,733 1,033 6,955 6,396 1,673 5,214 3,758 4,160 2,111 6,468 3,463 2,688 3,286 1,524 2,942 3,103 1,260 873 1,164 487 U.K. ERC U.S. ERC Other ERC 1) Encore, Intrum and Hoist data from Q4 2019. PRA Grou
Slide 11: Differentiated analytics, efficiency and scale deliver superior margins
Competitive OUR DIFFERENTIATED ANALYTICS, OPERATING Advantage EFFICIENCY & SCALE DELIVER SUPERIOR MARGINS TTM Operating Margin1 Margin Drivers 31.9% ► Employing advanced Peer analytics and proprietary 19.2% Range data assets ► Reducing costs & improving operating efficiency, 2 including shifting col
Slide 12: Growing ERC while reducing leverage
Balance Sheet WE ARE GROWING ERC WHILE REDUCING LEVERAGE Strength - A TREND WE EXPECT WILL CONTINUE IN 2020 Since the beginning of 2018: ERC versus Leverage ► Debt/Equity ratio reduced 8000 6.00 from 5.9x to 3.4x 7000 5.00 6000 ► Net Debt/(Adjusted EBITDA + 4.00 Collections applied to principal 5000
Slide 13: Detailed Financial Discussion
Detailed Financial Discussion 13
Slide 14: 2019 deployments reflect record year of U.S. portfolio purchasing
2019 DEPLOYMENTS REFLECT A RECORD YEAR OF PORTFOLIO PURCHASING IN THE U.S. Q4-2019 Deployments 2019 Deployments Europe Europe $80M $307M Other $12M United United States States $154M $682M Total $235M Total $1.00B 14
Slide 15: U.S. collections grew 9% in the fourth quarter
U.S. COLLECTIONS GREW 9% IN THE FOURTH QUARTER Collections by Geographic Location 514 515 489 496 499 499 499 500 484 400 300 $M 200 100 0 2018 2019 2018 2019 2018 2019 2018 2019 Q1 Q2 Q3 Q4 United States Europe Other 15
Slide 16: Global collections grew 3% in 2019, exceeding $2B
GLOBAL COLLECTIONS GREW 3% IN 2019 AND REACHED AN ALL-TIME HIGH, EXCEEDING $2B FOR THE FIRST TIME Collections by Geographic Location 2,027 1,968 2,000 1,768 1,500 $M 1,000 500 0 2017 2018 2019 United States Europe Other 16
Slide 17: Q4 global revenues of $348M
Q4 GLOBAL REVENUES OF $348M REFLECTED STRONG GROWTH IN THE U.S. AND THE DIVESTITURE OF BAYCORP Revenues1 by Geographic Location 347 350 347 356 349 348 350 327 337 300 250 200 $M 150 100 50 0 2018 2019 2018 2019 2018 2019 2018 2019 Q1 Q2 Q3 Q4 United States Europe Other 1) Net of allowances and allo
Slide 18: 2019 global revenue a record $1.4 billion
2019 GLOBAL REVENUE WAS A RECORD $1.4 BILLION, REFLECTING OUR CONTINUED FOCUS ON THE U.S. AND EUROPE Revenue1 by Geographic Location $M 1,398 1,400 1,362 1,187 1,200 1,000 800 $M 600 400 200 0 2017 2018 2019 United States Europe Other 1) Net of Allowances and allowance reversals 18
Slide 19: Estimated remaining collections grew $569 million to record $7.7 billion
ESTIMATED REMAINING COLLECTIONS GREW $569 MILLION IN THE LAST 12 MONTHS, TO A RECORD $7.7 BILLION Total Estimated Remaining Collections 8,000 7,733 7,164 6,955 6,000 $M 4,000 2,000 0 December 2017 December 2018 December 2019 United States Europe Other 19
Slide 20: Q4 2019 GAAP EPS of $1.36 and economic EPS of $1.56
ENCORE REPORTED GAAP EPS OF $1.36 AND ECONOMIC EPS OF $1.56 IN THE FOURTH QUARTER OF 2019 Three Months Ended December 31, 2019 $1.75 $0.06 $0.04 ($0.04) $1.56 $1.56 $0.12 $0.02 $1.50 $1.36 $1.25 $1.00 No shares $0.75 deducted in Q4 2019 $0.50 $0.25 $0.00 GAAP net income per Convertible and Acquisiti
Slide 21: Record GAAP EPS of $5.33 and economic EPS of $5.95 for 2019
ENCORE REPORTED RECORD GAAP EPS OF $5.33 AND RECORD ECONOMIC EPS OF $5.95 FOR FULL YEAR 2019 Twelve Months Ended December 31, 2019 $7.00 $0.23 ($0.07) $0.18 ($0.25) $0.22 ($0.19) $5.95 $5.95 $6.00 $0.50 $5.33 $5.00 $4.00 No shares $3.00 deducted in 2019 $2.00 $1.00 $0.00 GAAP net income Convertible
Slide 22: We do not expect CECL to have a material impact
WE DO NOT EXPECT CECL TO HAVE A MATERIAL IMPACT ON OUR FINANCIAL RESULTS Pre-CECL CECL Collection Curves Fixed collection curves of up to 15 years Rolling collection curves of 15 years IRR can be raised throughout life IRR fixed for life at purchase Revenue Underperformance recognized imme
Slide 23: 2019 Summary
2019 SUMMARY Delivered record results for collections, revenues, ERC and earnings Deployed a record level of capital in the U.S. at an initial purchase price multiple of 2.2x Purchased portfolios in Europe at returns that were 150-200 bps higher than a year ago Grew ERC by 8% while reducing
Slide 24: Strategy has enabled significant earnings growth; 2020 outlook
OUR STRATEGY HAS ENABLED US TO DELIVER SIGNIFICANT EARNINGS GROWTH OVER THE PAST SEVERAL YEARS Encore GAAP and Economic Earnings Per Share $5.95 $5.33 $4.98 $4.04 $4.06 $3.48 $3.05 $3.16 2016 2017 2018 2019 GAAP EPS Economic EPS We expect to continue improvement in operating performance by deliver
Slide 25: Appendix
—_ encore CAPITAL GROUP Appendix 25
Slide 26: Non-GAAP Financial Measures
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
Slide 27: Reconciliation of Adjusted Income and Economic EPS
RECONCILIATION OF ADJUSTED INCOME AND ECONOMIC EPS Reconciliation of Adjusted Income and Economic / Adjusted EPS to GAAP EPS (Unaudited, In Thousands, except per share amounts), Three Months Ended December 31, 2019 December 31, 2018 Per Diluted Share Per Diluted Share $ – Accounting & $ – Accounting
Slide 28: Reconciliation of Adjusted Income and Economic EPS
RECONCILIATION OF ADJUSTED INCOME AND ECONOMIC EPS Reconciliation of Adjusted Income and Economic / Adjusted EPS to GAAP EPS (Unaudited, In Thousands, except per share amounts), Twelve Months Ended December 31, 2019 December 31, 2018 Per Diluted Share Per Diluted Share $ $ Accounting & Economic Acco
Slide 29: Reconciliation of Adjusted EBITDA
RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 06/30/14 09/30/14 12/31/14 03/31/15 06/30/15 09/30/15 12/31/15 03/31/16 GAAP net income (loss), as reported $ 21,353 $ 30,138 $ 27,957 $ 29,967 $ 25,185 $ (9,364) $ 1
Slide 30: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 06/30/16 09/30/16 12/31/16 03/31/17 06/30/17 09/30/17 12/31/17 03/31/18 GAAP net income (loss), as reported $ 30,833 $ (51,946) $ 11,323 $ 14,979 $ 19,076
Slide 31: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 12/31/19 GAAP net income (loss), as reported $ 26,974 $ 13,016 $ 46,033 $ 49,442 $ 36,822 $ 39,413 $
Slide 32: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income 1) In the fourth quarter of 2016, we made a change to our presentation of adjusted EBITDA to adjust for interest income. In previous years we did not include interest income as an adjustment because it
Slide 33: Reconciliation of Adjusted Operating Expenses
RECONCILIATION OF ADJUSTED OPERATING EXPENSES RELATED TO PORTFOLIO PURCHASING AND RECOVERY BUSINESS Reconciliation of Adjusted Operating Expenses to GAAP Operating Expenses (Unaudited, In $ Thousands) Three Months Ended 3/31/18 6/30/18 9/30/18 12/31/18 03/31/19 06/30/19 09/30/19 12/31/19 GAAP total
Slide 34: Reconciliation of Adjusted Operating Expenses
RECONCILIATION OF ADJUSTED OPERATING EXPENSES RELATED TO PORTFOLIO PURCHASING AND RECOVERY BUSINESS Reconciliation of Adjusted Operating Expenses to GAAP Operating Expenses (Unaudited, In $ Thousands) Twelve Months Ended 12/31/19 12/31/18 GAAP total operating expenses, as reported $ 951,336 $ 956,73
Slide 35: Impact of Fluctuations in Foreign Currency Exchange Rates
IMPACT OF FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES (Unaudited, In Millions, except per share amounts) Three Months Ended Constant Twelve Months Ended Constant As Reported As Reported 12/31/19 Currency 12/31/19 Currency Encore Consolidated Encore Consolidated Revenue1 $348 $348 Revenue1 $1,398
Slide 36: Encore's Leverage Ratios
ENCORE’S LEVERAGE RATIOS Leverage Ratios at at at at at at at at Encore Consolidated 03/31/18 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 12/31/19 Debt / Equity 5.91x 5.65x 4.58x 4.27x 4.12x 3.92x 3.72x 3.44x Net Debt / (TTM Adjusted EBITDA + TTM Collections applied to principal balance)1
Slide 37: Reconciliation of Net Debt
RECONCILIATION OF NET DEBT Reconciliation of Net Debt (Unaudited, in millions) Three Months Ended 03/31/18 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 12/31/19 GAAP Borrowings, as reported $ 3,607 $ 3,530 $ 3,561 $ 3,491 $ 3,593 $ 3,530 $ 3,429 $ 3,513 Debt issuance costs and debt discount
Slide 38: 2019 improvement in cost-to-collect reflects more call center and digital collections
2019 IMPROVEMENT IN COST-TO-COLLECT PRIMARILY REFLECTS A HIGHER PROPORTION OF CALL CENTER AND DIGITAL COLLECTIONS IN THE U.S. Overall Cost-to-Collect1 Q4 2019 Q4 2018 Location CTC CTC 45% United States 42.6% 44.4% 39.6% 40% 38.5% 37.5% 37.4% 37.8% 36.4% 36.6% 36.0% Europe 27.5% 29.6% 35% Other 52.3%