Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q3 2022 Earnings Presentation
33 slides from Encore Capital's earnings presentation, Nov 2, 2022
Slide 1: Third Quarter 2022 Financial Results
Third Quarter 2022 Financial Results Encore Capital Group, Inc. November 2, 2022 Exhibit 99.1
Slide 2: Legal Disclaimers
Encore Capital Group, Inc. 2 Legal Disclaimers 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 e
Slide 3: Q3 2022 Highlights
Encore Capital Group, Inc. 3 Q3 2022 Highlights o Disciplined execution of our strategy has led to our strong current position o Q3 performance reflected impacts of an evolving macroeconomic environment • Lower collections resulting from reduced global portfolio purchasing in 2020 and 2021 and the n
Slide 4: Our Business and Our Strategy
Encore Capital Group, Inc. 4 Our Business and Our Strategy o Purchase NPL portfolios at attractive cash returns o Focus on the consumer and ensure the highest level of compliance o Meet or exceed collection expectations o Maintain efficient cost structure o Minimize cost of funding o Market Focus o
Slide 5: Credit card lending continues to grow; now above pre-pandemic levels in the U.S.
Encore Capital Group, Inc. 5 Credit card lending continues to grow; now above pre-pandemic levels in the U.S. while the UK recovery continues 0 20 40 60 80 100 Dec 19 Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21
Slide 6: With U.S. market supply rising, our deployments are growing
Encore Capital Group, Inc. 6 With U.S. market supply rising, our deployments are growing and approaching pre-pandemic levels Purchases by Geographic Location (in $M) 170 136 102 94 116 177 77 29 64 75 57 56 2019 Quarterly Average 2020 Quarterly Average 2021 Quarterly Average Q1 2022 Q2 2022 Q3 2022
Slide 7: Market Focus: MCM portfolio purchases were $177M in Q3
Encore Capital Group, Inc. 7 Market Focus: MCM portfolio purchases were $177M in Q3, similar to pre-pandemic levels MCM Collections (in $M) Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 371 407 o MCM collections of $325M in Q3 declined 20% compared to Q3 2021, primarily due to lower portfolio purchasing i
Slide 8: Market Focus: Cabot's reported performance impacted by weaker pound and Euro
Encore Capital Group, Inc. 8 Market Focus: Cabot’s reported performance in Q3 was impacted by the weakening of the British pound and Euro o Cabot collections of $132M in Q3 declined 15% compared to Q3 2021 as reported, but were equal to the year ago period in constant currency terms o We continue to
Slide 9: Competitive Advantage: Continued significant cash generation
Encore Capital Group, Inc. 0 200 400 600 800 1,000 1,200 1,400 1,600 2019 2020 2021 LTM Q3 2022 Adjusted EBITDA Collections applied to principal balance 9 Competitive Advantage: Continued significant cash generation Adjusted EBITDA + Collections Applied to Principal Balance (in $M) 1 1) See appendix
Slide 10: Competitive Advantage: We continue to deliver strong returns
Encore Capital Group, Inc. 10 Competitive Advantage: We continue to deliver strong returns 10.8% 12.5% 15.2% 15.1% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2019 2020 2021 LTM Q3 2022 Pre-Tax Return on Invested Capital1 ROIC takes into account both the performance of our collections operation and our a
Slide 11: Balance Sheet Strength: Leverage remains at the low end of target range
Encore Capital Group, Inc. Target Leverage Ratio Range 11 Balance Sheet Strength: Leverage remains at the low end of our target range 4.3x 3.4x 2.7x 2.0x 2.5x 2.3x2.8x 2.7x 2.4x 1.8x 1.9x 2.1x 0 1 2 3 4 5 6 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 20
Slide 12: Detailed Financial Discussion
Encore Capital Group, Inc. 12 Detailed Financial Discussion
Slide 13: Q3 2022 Key Financial Measures
Encore Capital Group, Inc. 13 Q3 2022 Key Financial Measures 3 Months 9 Months (YTD) Q3 2022 vs. Q3 2021 Q1-Q3 2022 vs. Q1-Q3 2021 Collections $458M -19% $1.48B -17% Revenues $308M -25% $1.16B -7% Portfolio Purchases $233M +38% $575M +20% Operating Expenses $227M -8% $700M -6% GAAP Net Income1 $31M
Slide 14: Collections in Q3 of $458M impacted by prior lower purchases
Encore Capital Group, Inc. 14 Collections in Q3 of $458M impacted by prior lower purchases, normalizing consumer behavior in the U.S. and currency effects Note: Year-to-date global collections through Q3 2022 were 105%, U.S. collections were 114% and Europe collections were 89% (96% in constant curr
Slide 15: Our funding structure is well diversified
Encore Capital Group, Inc. 15 Our funding structure is well diversified Debt Maturity Profile at September 30, 2022 (in $M) 343 335 686 173 100 597 391 39 10 212 29 443 1,323 - 686 0 200000000 400000000 600000000 800000000 1E+09 1.2E+09 1.4E+09 2022 2023 2024 2025 2026 2027 2028 As of September 30,
Slide 16: Our Financial Priorities
Encore Capital Group, Inc. 16 Our Financial Priorities o Preserve financial flexibility o Target leverage1 between 2.0x and 3.0x o Maintain a strong BB debt rating o Portfolio purchases at attractive returns o Strategic M&A o Share Repurchases Deliver strong ROIC through the credit cycle Balance She
Slide 17: Well-positioned to capitalize on opportunities ahead
Encore Capital Group, Inc. 17 Well-positioned to capitalize on opportunities ahead o U.S. consumer payment behavior is normalizing (compared to unusually high payment rates during the pandemic) while U.K. consumers remain stable o Entering growth portion of the industry supply cycle • U.S. lending n
Slide 18: Appendix
Encore Capital Group, Inc. 18 Appendix
Slide 19: Key Financial Measures by Year
Encore Capital Group, Inc. 19 Key Financial Measures by Year 2019 2020 2021 Collections $2.03B $2.11B $2.31B Revenues $1.40B $1.50B $1.61B Portfolio Purchases $1.00B $0.66B $0.66B ERC1 $7.83B $8.53B $7.75B GAAP Net Income2 $168M $212M $351M GAAP EPS $5.33 $6.68 $11.26 Pre-Tax ROIC3 10.8% 12.5% 15.2%
Slide 20: Key Financial Measures by Quarter
Encore Capital Group, Inc. 20 Key Financial Measures by Quarter 1) 180-month Estimated Remaining Collections 2) Attributable to Encore 3) See appendix for calculation of Pre-Tax ROIC (Return on Invested Capital) 4) LTM GAAP ROAE (Return on Average Equity) defined as LTM GAAP net income ÷ average sto
Slide 21: Debt/Equity and Leverage Ratios
Encore Capital Group, Inc. 21 Debt/Equity and Leverage Ratios 2021 2022 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Debt / Equity1 2.5x 2.2x 2.0x 2.5x 2.4x 2.3x 2.3x Leverage Ratio2 2.1x 1.9x 1.8x 1.9x 1.9x 2.0x 2.1x 1) GAAP Borrowings ÷ Total Encore Capital Group, Inc. stockholders’ equity 2) Leverage Ratio defined as Ne
Slide 22: Non-GAAP Financial Measures
Encore Capital Group, Inc. 22 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 informat
Slide 23: Reconciliation of Adjusted EBITDA to GAAP Net Income
Encore Capital Group, Inc. 23 Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, in $ thousands) 2019 2020 2021 GAAP net income, as reported $ 168,909 $ 212,524 $ 351,201 Interest expense 217,771 209,356 169,647 Loss on extinguishment of debt 8,989 40,951 9,300 Interest income (3,693)
Slide 24: Reconciliation of Adjusted EBITDA to GAAP Net Income (Quarterly)
Encore Capital Group, Inc. 24 Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, in $ thousands)) Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 GAAP net income (loss), as reported $ 37,212 $ 94,765 $ 96,787 $ 83,566 $ 76,083 $ 175,749 $ 60,439 $ 31,494 Interest expens
Slide 25: Calculation of ROIC
Encore Capital Group, Inc. 25 Calculation of ROIC Reconciliation of Adjusted Income from Operations (Unaudited, in $ thousands, except percentages) 2019 2020 2021 Numerator GAAP Income from operations $ 446,345 $ 533,562 $ 633,272 Adjustments:1 CFPB settlement fees2 --- 15,009 --- Acquisition, integ
Slide 26: Calculation of ROIC (Last Twelve Months)
Encore Capital Group, Inc. 26 Calculation of ROIC Reconciliation of Adjusted Income from Operations Last Twelve Months Ended (Unaudited, in $ thousands, except percentages) Sep 30, 2021 Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Numerator GAAP Income from operations $ 633,462 $ 633,272 $ 72
Slide 27: Reconciliation of Adjusted Income from Operations
Encore Capital Group, Inc. 27 Reconciliation of Adjusted Income from Operations (Unaudited, in $ thousands) Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Numerator GAAP Income from operations $ 124,213 $ 168,314 $ 174,287 $ 166,647 $ 124,023 $ 265,014 $ 118,948 $ 80,517 Adjustments
Slide 28: Reconciliation of Net Debt
Encore Capital Group, Inc. 28 Reconciliation of Net Debt 2018 2019 2020 (Unaudited, in $ millions) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 GAAP Borrowings, as reported $ 3,607 $ 3,530 $ 3,561 $ 3,491 $ 3,593 $ 3,530 $ 3,429 $ 3,513 $ 3,404 $ 3,354 $3,252 $ 3,282 Debt issuance costs and debt discounts 77
Slide 29: Key Metrics at Constant Currency Exchange Rates
Encore Capital Group, Inc. 29 Key Metrics at Constant Currency Exchange Rates Note: Constant Currency figures are calculated by employing Q3 2021 foreign currency exchange rates to recalculate Q3 2022 results. All constant currency values are calculated based on the average exchange rates during the
Slide 30: Cash Efficiency Margin
Encore Capital Group, Inc. 30 Cash Efficiency Margin 2,449 2,428 2,335 2,212 2,096 58.9% 59.6% 58.6% 57.0% 55.5% Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 LTM Cash Receipts LTM Cash Efficiency Margin LTM Cash Efficiency Margin and LTM Cash Receipts (in $M) Note: Last Twelve Months (“LTM”) Cash Efficie
Slide 31: Calculation of Cash Efficiency Margin
Encore Capital Group, Inc. 31 Calculation of Cash Efficiency Margin Note: Last Twelve Months (“LTM”) Cash Efficiency Margin defined as (LTM Cash receipts – LTM Operating expenses) ÷ LTM Cash receipts, where Cash receipts = Collections + Servicing revenue (Unaudited, in $ thousands) Q4 2020 Q1 2021 Q
Slide 32: Cash Collections and Revenue Reconciliation
Encore Capital Group, Inc. 32 Cash Collections and Revenue Reconciliation 458 463 297 5 -166 0 50 100 150 200 250 300 350 400 450 500 Cash Collections Recoveries Below Forecast (Under Performance) Expected Cash Collections Portfolio Amortization Revenue from Receivable Portfolios Q3 2022 Collections
Slide 33: Components of Debt Purchasing Revenue
Encore Capital Group, Inc. 33 Components of Debt Purchasing Revenue 297 284 -5 -8 0 50 100 150 200 250 300 Revenue from Receivable Portfolios Recoveries Below Forecast (Under Performance) Changes in Expected Future Recoveries Debt Purchasing Revenue Q3 2022 Debt Purchasing Revenue (in $M) 1. Revenue