Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q3 2017 Earnings Presentation
24 slides from Encore Capital's earnings presentation, Nov 2, 2017
Slide 1: Encore Capital Group Q3 2017 Earnings Call
Encore Capital Group, Inc. Q3 2017 EARNINGS CALL Exhibit 99.1
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 “will,” “may,” “believe,” “projects,” “expects,” “anticipates” or the negation thereof, or simi
Slide 3: Encore Update
eee ENCORE UPDATE <—=- encore
Slide 4: U.S. Market Conditions Remain Favorable for Our Business
4 U.S. MARKET CONDITIONS REMAIN FAVORABLE FOR OUR BUSINESS Supply continues to improve Banks are building their loan loss provisions Net charge-off rates continue to increase We expect meaningful supply growth for next year and beyond Pricing remains favorable Better returns are generati
Slide 5: Hurricanes Resulted in Collections Disruption
5 In line with Encore’s hardship policies, we temporarily suspended collections efforts in impacted areas Two Puerto Rico-focused pool groups incurred a combined allowance charge of approximately $10M After the allowance, remaining book value of the Puerto-Rico based accounts in these pools is
Slide 6: Cabot's Strong Deployments in Q3 Strengthened Its Position as Leading U.K. Debt Buyer
6 CABOT’S STRONG DEPLOYMENTS IN Q3 STRENGTHENED ITS POSITION AS THE LEADING DEBT BUYER IN THE U.K. Cabot had a very strong purchasing quarter in Europe, deploying $165 million at solid returns Cabot’s liquidation improvement initiatives continue to drive better sustained collections performance
Slide 7: Encore's Leverage Ratio Impacted by Consolidation of Cabot's Debt
7 ENCORE’S LEVERAGE RATIO IS SIGNIFICANTLY IMPACTED BY THE CONSOLIDATION OF CABOT’S DEBT ON OUR BALANCE SHEET Debt and Debt Ratios1 Upon consummation of a Cabot IPO, we intend to deconsolidate Cabot from Encore’s financial statements Encore With Cabot at 09/30/17 Without Cabot at 09/30/17 Total Debt
Slide 8: Detailed Financial Discussion
8 Detailed Financial Discussion
Slide 9: Encore Delivered Solid Third Quarter Results
9 ENCORE DELIVERED SOLID THIRD QUARTER RESULTS $1.17 Economic EPS2 GAAP EPS1 $1.05 GAAP Net Income1 $28.2 million Adjusted Income2 $30.7 million Estimated Remaining Collections of $6.6 Billion 1) From continuing operations attributable to Encore 2) Please refer to Appendix for reconciliation of Econ
Slide 10: Worldwide Deployments in Q3 Up 42% Year over Year
10 WORLDWIDE DEPLOYMENTS IN Q3 WERE UP 42% COMPARED TO THE SAME QUARTER A YEAR AGO Q3 2017 Deployments $M United States $111 Europe $177 Other $4 Total $292
Slide 11: Third Quarter Collections Reflect Growth in All Three Geographies
11 THIRD QUARTER COLLECTIONS REFLECT GROWTH IN ALL THREE GEOGRAPHIES COMPARED TO A YEAR AGO Collections by Geography 0 100 200 300 400 500 2 0 1 5 2 0 1 6 2 0 1 6 2 0 1 7 2 0 1 6 2 0 1 7 2 0 1 6 2 0 1 7 Q4 Q1 Q2 Q3 Collection Sites Legal Collections Collection Agencies $M 0 100 200 300 400 500 2 0 1
Slide 12: Q3 Revenue Reflects European Allowance Reversal Offset by Weather Impacts
Q3 REVENUE REFLECTS EUROPEAN ALLOWANCE REVERSAL PARTIALLY OFFSET BY WEATHER-RELATED IMPACTS IN THE U.S. Revenue by Geography 12 -50 0 50 100 150 200 250 300 350 2 0 1 5 2 0 1 6 2 0 1 6 2 0 1 7 2 0 1 6 2 0 1 7 2 0 1 6 2 0 1 7 Q4 Q1 Q2 Q3 United States Europe Other $M 289 291 307 291 272 289 179 271
Slide 13: ERC at End of Q3 Represents Encore's Highest Level to Date
13 ERC AT THE END OF Q3 REPRESENTS ENCORE’S HIGHEST LEVEL TO DATE Total Estimated Remaining Collections 0 1,000 2,000 3,000 4,000 5,000 6,000 September 2013 September 2014 September 2015 September 2016 September 2017 United States Europe Other 4,022 5,128 5,654 $M 5,733 6,568
Slide 14: GAAP EPS of $1.05 and Economic EPS of $1.17 in Q3 2017
ENCORE DELIVERED GAAP EPS OF $1.05 AND ECONOMIC EPS OF $1.17 IN THE THIRD QUARTER OF 2017 14 * Please refer to Appendix for reconciliation of Adjusted EPS / Economic EPS measurements to GAAP $1.05 $0.03 ($0.04) ($0.02) $1.15 $1.17 $0.12 $0.01 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 Net incom
Slide 15: A Number of Items Impacted Our Q3 Earnings Results
15 A NUMBER OF ITEMS IMPACTED OUR Q3 EARNINGS RESULTS As a result of Hurricane Maria, two Puerto Rico-focused pool groups incurred a combined allowance charge of approximately $10M Cabot’s sustained collections overperformance prompted an allowance reversal of approximately $28M Cabot recogniz
Slide 16: Summary
SUMMARY 16 Q3 was a solid quarter of financial and operational performance Supply of charged-off credit card receivables in U.S. continues to grow Favorable pricing and further liquidation improvements drove YTD core purchase price multiple to 2.0x through Q3 Cabot’s solid performance continue
Slide 17: Encore Capital Group: Better Solutions. Better Life.
\= encore CAPITAL GROUP Better Solutions. Better Life.
Slide 18: Appendix
\= encore CAPITAL GROUP Better Solutions. Better Life. Appendix
Slide 19: Non-GAAP Financial Measures
19 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 EBI
Slide 20: Reconciliation of Adjusted Income and Economic / Adjusted EPS
20 RECONCILIATION OF ADJUSTED INCOME AND ECONOMIC / ADJUSTED EPS Reconciliation of Adjusted Income and Economic / Adjusted EPS to GAAP EPS (Unaudited, In Thousands, except per share amounts), Three Months Ended September 30, 2017 2016 $ Per Diluted Share – Accounting Per Diluted Share – Economic6 $
Slide 21: Reconciliation of Adjusted EBITDA to GAAP Net Income
Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 9/30/16 12/31/16 3/31/17 6/30/17 9/30/17 GAAP net (loss) income, as reported $ (51,946) $ 11,323 $ 14,979 $ 19,076 $ 42,144 Adjustments: (Income) loss from discontinued operations, net of tax --- (829
Slide 22: Reconciliation of Adjusted Operating Expenses to GAAP Operating Expenses
Reconciliation of Adjusted Operating Expenses to GAAP Operating Expenses (Unaudited, In $ Thousands) Three Months Ended RECONCILIATION OF ADJUSTED OPERATING EXPENSES 12/31/15 3/31/16 6/30/16 9/30/16 12/31/16 3/31/17 6/30/17 9/30/17 GAAP total operating expenses, as reported $ 206,271 $ 205,513 $ 197
Slide 23: Impact of Fluctuations in Foreign Currency Exchange Rates
(Unaudited, In Millions, except per share amounts) IMPACT OF FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES Three Months Ended 9/30/17 As Reported Constant Currency Revenue $ 307 $ 306 Operating expenses $ 203 $ 202 Net income* $ 28 $ 28 Adjusted net income* $ 31 $ 31 GAAP EPS* $ 1.05 $ 1.06 Econom
Slide 24: Cost-to-Collect Reflects Lower Costs in Europe Offset by U.S. Capacity Expansion
COST-TO-COLLECT REFLECTS LOWER COSTS IN EUROPE PARTIALLY OFFSET BY CAPACITY EXPANSION COSTS IN THE U.S. 24 Overall Cost-to-Collect1 41.5% 38.4% 37.7% 37.8% 36.9% 40.3% 41.1% [VALUE] 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2 0 1 5 2 0 1 6 2 0 1 6 2 0 1 7 2 0 1 6 2 0 1 7 2 0 1 6 2 0 1 7 Q4 Q1 Q2 Q3 1. C