Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q1 2021 Earnings Presentation
30 slides from Encore Capital's earnings presentation, May 5, 2021
Slide 1: Encore Capital Group, Inc. Q1 2021 Earnings Call
Encore Capital Group, Inc. Q1 2021 EARNINGS CALL
Slide 2: Cautionary Note About Forward-Looking Statements
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 ion thereof, or similar eaning of the Private Securities Litigation Reform Act of 1995 (the are
Slide 3: Q1 2021 Highlights
Q1 2021 HIGHLIGHTS 3 Encore delivered strong operational and financial performance in Q1 Portfolio purchases were $170M at a purchase price multiple of 2.4x Q1 share repurchases of $20M and authorization increased to $300M multi-year program
Slide 4: Our Business and Our Strategy
4 OUR BUSINESS AND OUR STRATEGY Our StrategyOur Business Purchase NPL portfolios at attractive cash returns Focus on the consumer and ensure the highest level of compliance Meet or exceed collection expectations Maintain efficient cost structure Minimize cost of funding Market Focus Competitive Adva
Slide 5: Market Focus: Q1 for MCM Characterized by Very Strong Collections
5 MARKET FOCUS: Q1 FOR MCM CHARACTERIZED BY VERY STRONG COLLECTIONS RESULTING IN INCREASED OPERATING LEVERAGE Record collections of $436M grew 16% compared to Q1 2020 Call Center & Digital collections grew 25% compared to Q1 2020 Collections effectiveness and scalability enabled significant reductio
Slide 6: Market Focus: Q1 for Cabot Characterized by Improved Collections
6 MARKET FOCUS: Q1 FOR CABOT CHARACTERIZED BY IMPROVED COLLECTIONS Collections of $163M grew 13% compared to Q1 2020 and were 108% of Dec 31, 2020 ERC forecast1 normalize from COVID-related volatility Portfolio purchases of $78M in Europe were higher compared to Q1 2020, with prices generally return
Slide 7: Competitive Advantage: Continued Strong Cash Generation
COMPETITIVE ADVANTAGE: CONTINUED STRONG CASH GENERATION 7 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 FY 2018 FY 2019 FY 2020 LTM Q1 2021 Adjusted EBITDA Collections applied to principal balance 1) Cash Generation defined as Adjusted EBITDA + collections applied to principal balance. 2) See appendix
Slide 8: Competitive Advantage: Strong Returns Through the Credit Cycle
8 COMPETITIVE ADVANTAGE: WE EXPECT TO DELIVER STRONG RETURNS THROUGH THE CREDIT CYCLE 1) See appendix for calculation of Pre-Tax ROIC (Return on Invested Capital) ROIC is an important measure of our overall performance Pre-Tax Return on Invested Capital1 10.1% 10.8% 12.5% 15.8% FY 2018 FY 2019 FY 20
Slide 9: Balance Sheet Strength: Further Reduction in Leverage Ratio
9 BALANCE SHEET STRENGTH: STRONG CASH GENERATION IN Q1 DROVE A FURTHER REDUCTION IN OUR LEVERAGE RATIO Leverage 1) Leverage Ratio defined as Net Debt / (Adjusted EBITDA + collections applied to principal balance). See appendix for reconciliation of Net Debt to GAAP Borrowings and Adjusted EBITDA to
Slide 10: Detailed Financial Discussion
10 Detailed Financial Discussion
Slide 11: Q1 2021 Key Financial Measures
Q1 2021 KEY FINANCIAL MEASURES 11 1) 180-month Estimated Remaining Collections 2) Attributable to Encore 3) See appendix for calculation of LTM Pre-Tax ROIC (Return on Invested Capital) 4) Leverage Ratio defined as Net Debt / (Adjusted EBITDA + collections applied to principal balance) Q1 2021 vs. Q
Slide 12: Collections of $606M Were Up 15% Compared to Q1 Last Year
12 COLLECTIONS OF $606M WERE UP 15% COMPARED TO Q1 LAST YEAR Collections by Geographic Location 0 100 200 300 400 500 600 2 0 1 9 2 0 2 0 2 0 1 9 2 0 2 0 2 0 1 9 2 0 2 0 2 0 2 0 2 0 2 1 Q2 Q3 Q4 Q1 United States Europe Other 537 606 515 499 499 527508 540 $M Year-to-date global collections1 through
Slide 13: Q1 Revenues of $417M Reflect Our Focus on the U.S. and Europe
Q1 REVENUES OF $417M REFLECT OUR FOCUS ON THE U.S. AND EUROPE Revenues by Geographic Location 13 0 50 100 150 200 250 300 350 400 450 2 0 1 9 2 0 2 0 2 0 1 9 2 0 2 0 2 0 1 9 2 0 2 0 2 0 2 0 2 0 2 1 Q2 Q3 Q4 Q1 United States Europe Other $M 289 347 356 348 417426 404 383
Slide 14: ERC of $8.3B Was Down 2% Compared to Q1 Last Year
14 ERC OF $8.3B WAS DOWN 2% COMPARED TO Q1 LAST YEAR Total Estimated Remaining Collections1 0 2,000 4,000 6,000 8,000 Q1 2019 Q1 2020 Q1 2021 United States Europe Other Geographies REO 7,336 8,459 8,309 $M 1) Q1 2019 ERC of $7,276M as reported did not include $60M of E
Slide 15: We Have a Diversified Global Funding Structure
312 410 413 487 150 173 100 521 482 29 189 523 550 993 413 487 2021 2022 2023 2024 2025 2026 2027 2028 WE HAVE A DIVERSIFIED GLOBAL FUNDING STRUCTURE 15 Debt Maturity Profile at March 31, 2021 ($M) Note: At 03/31/2021, LTV Ratio (loan-to-value) = 38.8% (72.5% covenant), FCCR (Fixed Charge Coverage R
Slide 16: Our Financial Priorities
OUR FINANCIAL PRIORITIES 16 Preserve financial flexibility Target leverage1 between 2.0x and 3.0x Maintain a strong BB debt rating Deliver strong ROIC through the credit cycle Balance Sheet Objectives Portfolio purchases at attractive returns Strategic M&A Share repurchases Capital Allocation Priori
Slide 17: Appendix
\es Sncore Appendix 17
Slide 18: Key Financial Measures by Year
KEY FINANCIAL MEASURES BY YEAR 18 2018 2019 2020 Collections $1.97B $2.03B $2.11B Revenues $1.36B $1.40B $1.50B Portfolio Purchases $1.13B $1.00B $0.66B ERC1 $7.22B $7.83B $8.53B GAAP Net Income2 $116M $168M $212M GAAP EPS $4.06 $5.33 $6.68 Pre-tax ROIC3 10.1% 10.8% 12.5% GAAP ROAE4 16.6% 18.2% 18.9
Slide 19: Key Financial Measures by Quarter
KEY FINANCIAL MEASURES BY QUARTER 19 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Collections $527M $508M $540M $537M $606M Revenues $289M $426M $404M $383M $417M Portfolio Purchases $214M $148M $170M $128M $170M ERC1 $8.46B $8.38B $8.46B $8.53B $8.31B GAAP Net Income2 ($10M) $130M $55M $37M $95M GAAP EP
Slide 20: Leverage Ratios
20 LEVERAGE RATIOS at 03/31/18 at 06/30/18 at 09/30/18 at 12/31/18 Debt / Equity 5.9x 5.7x 4.6x 4.3x Net Debt / (LTM Adjusted EBITDA + LTM Collections applied to principal balance)1 3.2x 3.0x 2.9x 2.8x 1) See appendix for reconciliation of Adjusted EBITDA to GAAP net income and for reconciliation of
Slide 21: Non-GAAP Financial Measures
21 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 Principl information concerning Adjusted EBITDA because management utilizes this
Slide 22: Reconciliation of Adjusted EBITDA to GAAP Net Income (Annual)
(Unaudited, in $ thousands) Twelve Months Ended 12/31/2020 12/31/2019 12/31/2018 GAAP net income, as reported $ 212,524 $ 168,909 $ 109,736 Interest expense 209,356 217,771 237,355 Loss on extinguishment of debt 40,951 8,989 2,693 Interest income (2,397) (3,693) (3,345) Provision for income taxes 70
Slide 23: Reconciliation of Adjusted EBITDA to GAAP Net Income (Quarterly)
(Unaudited, in $ thousands) Three Months Ended RECONCILIATION OF ADJUSTED EBITDA TO GAAP NET INCOME 23 1) Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore, ad
Slide 24: Calculation of ROIC
CALCULATION OF ROIC RECONCILIATION OF ADJUSTED INCOME FROM OPERATIONS (in $ thousands) LTM 12/31/2020 LTM 12/31/2019 LTM 12/31/2018 Numerator GAAP Income from operations $ 533,562 $ 446,345 $ 405,300 Adjustments:1 CFPB settlement fees2 15,009 --- --- Acquisition, integration and restructuring relate
Slide 25: Calculation of ROIC (LTM Quarterly)
LTM Q1 2020 LTM Q2 2020 LTM Q3 2020 LTM Q4 2020 LTM Q1 2021 Numerator GAAP Income from operations $ 382,489 $ 488,449 $ 522,559 $ 533,562 $ 654,675 Adjustments:1 CFPB settlement fees2 --- --- 15,009 15,009 15,009 Acquisition, integration and restructuring related expenses3 6,028 4,678 836 154 (33) A
Slide 26: Calculation of ROIC (Quarterly)
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Numerator GAAP Income from operations $ 113,732 $ 108,345 $ 113,210 $47,202 $ 219,692 $ 142,455 $ 124,213 $ 168,314 Adjustments:1 CFPB settlement fees2 --- --- --- --- --- 15,009 --- --- Acquisition, integration and restructuring relate
Slide 27: Reconciliation of Net Debt
03/31/21 GAAP Borrowings, as reported $ 3,152 Debt issuance costs and debt discounts 68 Cash & cash equivalents (185) Client cash1 23 Net Debt $ 3,058 RECONCILIATION OF NET DEBT 271) Client cash is cash that was collected on behalf of, and remains payable to, third party clients. 03/31/19 06/30/19 0
Slide 28: Reconciliation of Adjusted Operating Expenses
RECONCILIATION OF ADJUSTED OPERATING EXPENSES RELATED TO PORTFOLIO PURCHASING AND RECOVERY BUSINESS 06/30/19 09/30/19 12/31/19 03/31/20 06/30/20 09/30/20 12/31/20 03/31/21 GAAP total operating expenses, as reported $ 233,142 $ 247,591 $ 234,584 $ 241,879 $ 206,341 $ 261,221 $ 258,397 $ 248,523 Opera
Slide 29: Cost-to-Collect Includes 100% of Court Costs
BEGINNING IN Q1 2020, COST-TO-COLLECT INCLUDES 100% OF COURT COSTS, BRINGING ENCORE INTO ALIGNMENT WITH THE INDUSTRY 29 Overall Cost-to-Collect1 36.6% 31.3% 37.4% 34.9% 37.8% 39.1% 37.1% 33.4% 2 0 1 9 2 0 2 0 2 0 1 9 2 0 2 0 2 0 1 9 2 0 2 0 2 0 2 0 2 0 2 1 Q2 Q3 Q4 Q1 1) Cost-to-Collect = Adjusted o
Slide 30: Impact of Fluctuations in Foreign Currency Exchange Rates
IMPACT OF FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES Three Months Ended 03/31/21 As Reported Constant Currency Revenues $417 $408 Operating expenses $249 $243 GAAP Net income1 $95 $92 GAAP EPS1 $2.97 $2.90 Collections $606 $595 ERC2 $8,309 $7,898 Debt2 $3,152 $2,963 30 Note: Constant Currency f