Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q3 2019 Earnings Presentation
36 slides from Encore Capital's earnings presentation, Nov 6, 2019
Slide 1: Encore Capital Group, Inc. Q3 2019 Earnings Call
Exhibit 99.1 Encore Capital Group, Inc. Q3 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: Third Quarter 2019 Financial Highlights
THIRD QUARTER 2019 FINANCIAL HIGHLIGHTS Estimated Remaining Global Collections Global Revenue1 Collections (ERC)2 $499M $356M $7.3B flat up 6% up 1% up 2% in constant currency Record up 4% in constant currency GAAP EPS3 GAAP Net Income3 Economic EPS4 Adjusted Income4 $1.23 $38.9M $1.64 $51.9M up 78%
Slide 4: Steady Progress on Three Strategic Priorities Aimed at Building Shareholder Value
WE ARE MAKING STEADY PROGRESS ON THREE STRATEGIC PRIORITIES AIMED AT BUILDING SHAREHOLDER VALUE Balance Sheet Strengthening our balance sheet 1 Strength while delivering strong results Concentrating on the U.S. and the Market U.K. markets, where we have the 2 Focus highest risk-adjusted returns Comp
Slide 5: Growing ERC While Reducing Our Leverage
Balance Sheet WE ARE GROWING OUR ERC WHILE REDUCING 1 Strength OUR LEVERAGE Since the beginning of 2018: ERC versus Leverage 6.0 ► Debt/Equity ratio reduced from 7000 5.9x to 3.7x 5.0 6000 ► Net Debt/(Adjusted EBITDA + Collections applied to principal 5000 4.0 balance)1 ratio reduced from 3.2x 4000
Slide 6: The Recurring Market Opportunity in the U.S. and U.K. Is Substantial
Market THE RECURRING MARKET OPPORTUNITY IN 2 Focus THE U.S. AND U.K. IS SUBSTANTIAL Population: 329m Population: 67m Total Revolving Debt Total Unsecured Consumer Outstanding Credit Outstanding $1.1tn1 $274bn3 Credit Card Net Unsecured Credit Net Charge-Off Rate Charge-Off Rate 3.8%1 1.9%3 Approxima
Slide 7: Our Major Focus Is on Our Most Valuable Markets - U.S. and U.K.
Market OUR MAJOR FOCUS IS ON OUR MOST 2 Focus VALUABLE MARKETS - THE U.S. AND THE U.K. Global Deployment 2019 YTD Focused Actions Continental Other Europe < 2% ► U.S. deployments in 2019 < 5% expected to exceed record U.S. deployments of 2018 ► Divested our interest in United Kingdom Refinancia (Col
Slide 8: Market-Leading Scale in Our Core Markets
Market WE HAVE MARKET-LEADING SCALE IN 2 Focus OUR CORE MARKETS Leading ERC across U.S. and U.K.1 US$M 7,298 6,573 900 6,404 1,625 4,978 3,474 3,876 2,101 6,182 3,496 2,643 2,791 1,612 2,924 2,877 1,284 1,085 1,031 ~391 U.K. ERC U.S. ERC Other ERC Note: Encore data from Q3 2019. Peer data from Q2 20
Slide 9: Improved Liquidation Effectiveness Driven by Consumer Focus & Operational Enhancements
Competitive IMPROVED LIQUIDATION EFFECTIVENESS DRIVEN BY 3 Advantage CONSUMER FOCUS & OPERATIONAL ENHANCEMENTS % MCM Collections by MCM Collections Performance Call Center & Digital Channel (Indexed performance in first 12 months)1 56% 144 137 54% 100 100 48% Payer rate2 Cumulative cash liquidation
Slide 10: MCM Has Grown Collections While Improving Cost to Collect
Competitive MCM HAS GROWN COLLECTIONS WHILE 3 Advantage IMPROVING COST TO COLLECT MCM (U.S.) Collections versus Cost to Collect 44.2% 42.4% 40.6% $1,290 $1,224 $1,101 2017 2018 Q3 2019 TTM MCM Collections (in $M) MCM Cost to Collect 10
Slide 11: Consumer Satisfaction Is a Key Element of Cabot's Leadership Position
Competitive CONSUMER SATISFACTION IS A KEY ELEMENT 3 Advantage OF CABOT’S LEADERSHIP POSITION U.K. Consumer Satisfaction Index1 Comparison with selected banks 82.3 81.4 80.6 79.2 77.9 Recognized Industry Leadership Best Vulnerable Debt Purchaser Customer Support Best Legal Services of the Year 2019
Slide 12: MCM Deployments of $173M Remain on Track for a Record Year
MCM DEPLOYMENTS OF $173M REMAIN ON Q3 Results TRACK FOR A RECORD YEAR MCM (U.S.) Business MCM Collections by Channel We continue to purchase portfolios at strong returns as U.S. Call Center & Digital Legal Collections Collection Agencies deployments totaled $173M, up $331 $M $318 41% from Q3 2018
Slide 13: Cabot Is Purchasing Portfolios at Higher Returns and Reducing Leverage
CABOT IS PURCHASING PORTFOLIOS AT Q3 Results HIGHER RETURNS AND REDUCING LEVERAGE Cabot (Europe) Business 1 European portfolio purchases totaled $85M in the DP Collections third quarter, at returns that were 200 basis points higher than last year $150M Cabot returns continue to benefit from oper
Slide 14: Operational Differentiation and Scale Deliver Superior Margins
OUR OPERATIONAL DIFFERENTIATION AND Q3 Results SCALE DELIVER SUPERIOR MARGINS TTM Operating Margin1 Margin Drivers 31.8% 32.1% ► Leadership scale in key, 26.8% attractive markets ► Reducing costs & improving operating efficiency, including shifting collections to lower cost call center & digital Enc
Slide 15: Return on Equity Reflects Steadily Improving Operating Performance
OUR RETURN ON EQUITY REFLECTS OUR Q3 Results STEADILY IMPROVING OPERATING PERFORMANCE TTM GAAP Return on Average Equity (ROAE)1 20.2% 20.2% 19.3% 16.6% 15.1% 13.7% 12.1% Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 1) TTM GAAP Return on Average Equity (ROAE) defined as TTM GAAP net income
Slide 16: Detailed Financial Discussion
Detailed Financial Discussion 16
Slide 17: Portfolio Purchases in Q3 Emphasize Deploying Capital in the U.S.
PORTFOLIO PURCHASES IN Q3 REFLECT OUR CURRENT EMPHASIS ON DEPLOYING MORE CAPITAL IN THE U.S. MARKET Q3 2019 Deployments Europe $85M United States $173M Other $1M Total $260M 17
Slide 18: U.S. Collections Grew 4% in the Third Quarter
U.S. COLLECTIONS GREW 4% IN THE THIRD QUARTER Collections by Geography Collections by Channel Call Center & Digital Legal Collections Collection Agencies $M United States Europe Other $M 514 515 514 515 484 489 496 499 499 484 489 496 499 499 500 500 438 438 400 400 300 300 200 200 100 100 0 0 2017
Slide 19: Record Q3 Global Revenues of $356M
RECORD Q3 GLOBAL REVENUES OF $356M GREW 6% AS REPORTED AND WERE UP 8% IN CONSTANT CURRENCY Revenues1 by Geography $M 350 356 349 347 347 337 350 317 327 300 250 200 150 100 50 0 2017 2018 2018 2019 2018 2019 2018 2019 Q4 Q1 Q2 Q3 United States Europe Other 1) Net of allowances and allowance reversal
Slide 20: Estimated Remaining Collections Grew $76 Million in the Last 12 Months
ESTIMATED REMAINING COLLECTIONS GREW $76 MILLION IN THE LAST 12 MONTHS, TO $7.3 BILLION Total Estimated Remaining Collections 7,500 7,221 7,298 6,568 6,000 5,654 5,733 4,500 $M 3,000 1,500 0 September 2015 September 2016 September 2017 September 2018 September 20191 United States Europe Other 1) Sep
Slide 21: Reported GAAP EPS of $1.23 and Record Economic EPS of $1.64
ENCORE REPORTED GAAP EPS OF $1.23 AND RECORD ECONOMIC EPS OF $1.64 IN THE THIRD QUARTER OF 2019 Three Months Ended September 30, 2019 $2.00 $0.22 ($0.05) $1.64 $1.64 $0.05 $1.50 $0.11 $0.08 $1.23 $1.00 No shares deducted in Q3 2019 $0.50 $0.00 GAAP net income per Acquisition, Convertible and Amortiz
Slide 22: Q3 2019 Summary and Outlook
Q3 2019 SUMMARY AND OUTLOOK ● Record performance o Record global revenue, adjusted income and Economic EPS ● Continued success on key priorities contributing to best returns in years and creation of shareholder value o Strengthening our balance sheet while delivering strong results o Concentrating o
Slide 23: Q&A
Ves, Shore Q&A 23
Slide 24: Appendix
—= encore CAPITAL GROUP Appendix 24
Slide 25: 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 26: 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 September 30, 2019 September 30, 2018 Per Diluted Share Per Diluted Share $ – Accounting & $ – Accounti
Slide 27: Adjusted EBITDA Reflects Our Strong Cash Generation
OUR ADJUSTED EBITDA REFLECTS OUR STRONG CASH GENERATION 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 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q
Slide 28: Reconciliation of Adjusted EBITDA
RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 03/31/14 06/30/14 09/30/14 12/31/14 03/31/15 06/30/15 09/30/15 12/31/15 GAAP net income (loss), as reported $ 18,830 $ 21,353 $ 30,138 $ 27,957 $ 29,967 $ 25,185 $ (9
Slide 29: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 03/31/16 06/30/16 09/30/16 12/31/16 03/31/17 06/30/17 09/30/17 12/31/17 GAAP net income (loss), as reported $ 26,607 $ 30,833 $ (51,946) $ 11,323 $ 14,979
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 03/31/18 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 GAAP net income (loss), as reported $ 23,713 $ 26,974 $ 13,016 $ 46,033 $ 49,442 $ 36,822 $
Slide 31: 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 32: 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 12/31/17 3/31/18 6/30/18 9/30/18 12/31/18 03/31/19 06/30/19 09/30/19 GAAP total
Slide 33: Impact of Fluctuations in Foreign Currency Exchange Rates
IMPACT OF FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES (Unaudited, in millions, except per share amounts) Encore Consolidated Cabot (Europe) Three Months Ended Constant Three Months Ended Constant As Reported As Reported 9/30/19 Currency 9/30/19 Currency Revenue1 $356 $365 Revenue1 $131 $138 Oper
Slide 34: Encore's Leverage Ratios
ENCORE’S LEVERAGE RATIOS Leverage Ratios Encore Consolidated at 09/30/18 at 06/30/19 at 09/30/19 Debt / Equity 4.58x 3.92x 3.72x Net Debt / (TTM Adjusted EBITDA + TTM Collections applied to principal balance)1 2.94x 2.74x 2.67x 1) See appendix for reconciliation of Adjusted EBITDA to GAAP net income
Slide 35: 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 GAAP Borrowings, as reported $ 3,607 $ 3,530 $ 3,561 $ 3,491 $ 3,593 $ 3,530 $ 3,429 Debt issuance costs and debt discounts 77 70 89 85 79
Slide 36: Cost to Collect for Debt Purchasing Business
COST TO COLLECT FOR DEBT PURCHASING BUSINESS Overall Cost-to-Collect1 45% 41.5% 39.6% 40% 38.5% 37.5% 37.4% 36.4% 36.6% 36.0% Q3 2018 Q3 2019 35% Location CTC CTC 30% 25% United States 40.7% 39.8% 20% Europe 24.4% 29.0% 15% Other 46.9% 63.5% 10% Encore total 36.0% 37.4% 5% 0% 2017 2018 2018 2019 201