Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q2 2019 Earnings Presentation
27 slides from Encore Capital's earnings presentation, Aug 7, 2019
Slide 1: Encore Capital Group, Inc. Q2 2019 Earnings Call
Exhibit 99.1 Encore Capital Group, Inc. Q2 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: Second Quarter 2019 Financial Highlights
SECOND QUARTER 2019 FINANCIAL HIGHLIGHTS Estimated Remaining Global Collections Global Revenue1 Collections (ERC) $515M $347M $7.4B up 4% down 1% up 2% Record Record GAAP EPS2 GAAP Net Income2 Economic EPS3 Adjusted Income3 $1.17 $36.7M $1.28 $40.3M up 17% up 39% down 4% up 15% 1) Total Revenue, adj
Slide 4: Our 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, - Trailing in $M) 12-Months $1,200 $1,000 $800 $600 $400 $200 $0 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q
Slide 5: Our Operating Margin Trend Reflects Improvements in Portfolio Returns and Operating Efficiency
OUR OPERATING MARGIN TREND REFLECTS IMPROVEMENTS IN PORTFOLIO RETURNS AND OPERATING EFFICIENCY Operating Margin1 (Trailing 12-Months) 35% 31% 32% 30% 30% 28% 27% 27% 25% 20% 15% 10% 5% 0% Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 1) Operating margin defined as GAAP operating income / revenues
Slide 6: Tailwinds Continue to Drive NPL Supply
TAILWINDS CONTINUE TO DRIVE NPL SUPPLY… Key Global Factors Driving NPL Supply Increasing regulatory pressure on banks to Fresh paper supply Consumers have reduce NPL stockpiles now dominates the U.S. accumulated record market indebtedness Banks choosing to outsource credit Banks have fewer managemen
Slide 7: With New NPL Supply Likely to Grow Significantly
… WITH NEW NPL SUPPLY LIKELY TO GROW SIGNIFICANTLY Revolving Credit / Unsecured Lending versus Charge-Off Rate $1,200 12% £250 8% 7% $1,000 10% £200 6% $800 8% 5% £150 $600 6% 4% Outstanding ($B) Lending (£B) Lending £100 3% $400 4% Credit 2% £50 $200 2% 1% Revolving $0 0% £0 0% U.S. Revolving Consu
Slide 8: Stronger Than Expected MCM Collections in Q2 Grew 7% to a Record $333 Million
STRONGER THAN EXPECTED MCM COLLECTIONS IN Q2 GREW 7% TO A RECORD $333 MILLION Encore’s U.S. Business MCM Collections by Channel We continue to purchase portfolios at strong returns as Q2 U.S. Call Center & Digital Legal Collections Collection Agencies deployments totaled $180M, consisting primaril
Slide 9: Cabot Continues to Grow Collections and Reduce Leverage
CABOT CONTINUES TO GROW COLLECTIONS AND REDUCE LEVERAGE Encore’s European Business DP Collections European portfolio purchases totaled $57M in the second quarter, at returns that were 200 basis points higher than last year $158M Collections from debt purchasing in Europe grew 7% in up 7% constan
Slide 10: Detailed Financial Discussion
Detailed Financial Discussion 10
Slide 11: Portfolio Purchases in Q2 Reflect Emphasis on Deploying More Capital in the U.S.
PORTFOLIO PURCHASES IN Q2 REFLECT OUR CURRENT EMPHASIS ON DEPLOYING MORE CAPITAL IN THE U.S. MARKET Q2 2019 Deployments Europe $57M Other $6M United States $180M Total $243M 11
Slide 12: Call Center & Digital Collections in the U.S. Grew 12% in the Second Quarter
CALL CENTER & DIGITAL COLLECTIONS IN THE U.S. GREW 12% IN THE SECOND QUARTER Collections by Geography Collections by Channel Call Center & Digital Legal Collections Collection Agencies $M United States Europe Other $M 515 515 499 514 496 499 514 496 500 484 489 500 484 489 443 438 443 438 400 400 30
Slide 13: U.S. Revenue Grew 11% in the Second Quarter
U.S. REVENUE GREW 11% IN THE SECOND QUARTER Revenue1 by Geography $M 349 347 350 347 350 337 327 307 317 300 250 200 150 100 50 0 2017 2018 2017 2018 2018 2019 2018 2019 Q3 Q4 Q1 Q2 United States Europe Other 1) Net of allowances and allowance reversals 13
Slide 14: Estimated Remaining Collections Grew $134 Million in the Last 12 Months
ESTIMATED REMAINING COLLECTIONS GREW $134 MILLION IN THE LAST 12 MONTHS, TO $7.4 BILLION Total Estimated Remaining Collections 7,500 7,216 7,350 6,256 6,000 5,684 5,537 4,500 $M 3,000 1,500 0 June 2015 June 2016 June 2017 June 2018 June 2019 United States Europe Other 14
Slide 15: Replaced Cabot's Senior Secured Notes Maturing in 2021 with a New Issue Due 2024
WE SUCCESSFULLY REPLACED ALL OF CABOT’S SENIOR SECURED NOTES MATURING IN 2021 WITH A NEW ISSUE DUE IN 2024 Cabot Debt Maturity Profile at June 30, 2019 ($M) 1,095 Revolving Credit Facility Securitisation Facilities 2023 Senior Secured Notes 2024 Senior Secured Floating‐Rate Notes 651 444 455 291 201
Slide 16: Encore Reported GAAP EPS of $1.17 and Economic EPS of $1.28
ENCORE REPORTED GAAP EPS OF $1.17 AND ECONOMIC EPS OF $1.28 IN THE SECOND QUARTER OF 2019 Three Months Ended June 30, 2019 $1.60 $0.04 ($0.07) $0.06 ($0.05) $1.40 $0.13 $1.28 $1.28 $1.17 $1.20 $1.00 $0.80 No shares deducted $0.60 in Q2 2019 $0.40 $0.20 $0.00 GAAP net income per Convertible and Amort
Slide 17: Q2 2019 Summary and Outlook
Q2 2019 SUMMARY AND OUTLOOK 1. Record performance Record global collections and ERC Record MCM collections and revenues in the U.S. 2. Solid progress in expanding operating leverage Improving collections efficiency A growing proportion of higher return pool groups in our collections 3. Leadi
Slide 18: Q&A
Ve, Shore Q&A 18
Slide 19: Appendix
—_ encore CAPITAL GROUP Appendix 19
Slide 20: Reconciliation of Adjusted Income and Economic / Adjusted EPS
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 June 30, 2019 2018 Per Diluted Per Diluted Share – Share – $ $ Accounting & Accounting & Eco
Slide 21: Reconciliation of Adjusted EBITDA
RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 12/31/13 03/31/14 06/30/14 09/30/14 12/31/14 03/31/15 06/30/15 09/30/15 GAAP net income (loss), as reported $ 22,216 $ 18,830 $ 21,353 $ 30,138 $ 27,957 $ 29,967 $ 25
Slide 22: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 12/31/15 03/31/16 06/30/16 09/30/16 12/31/16 03/31/17 06/30/17 09/30/17 GAAP net income (loss), as reported $ 1,596 $ 26,607 $ 30,833 $ (51,946) $ 11,323
Slide 23: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 GAAP net income (loss), as reported $ 2,779 $ 23,713 $ 26,974 $ 13,016 $ 46,033 $ 49,442 $
Slide 24: Reconciliation of Adjusted Operating Expenses Related to Portfolio Purchasing and Recovery Business
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 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 12/31/18 03/31/19 06/30/19 GAAP total o
Slide 25: 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 6/30/19 Currency 6/30/19 Currency Revenue1 $347 $356 Revenue1 $131 $139 Oper
Slide 26: Encore's Leverage Ratios
ENCORE’S LEVERAGE RATIOS Leverage Ratios Encore Consolidated at 06/30/19 at 03/31/19 at 06/30/18 Total Debt $3.53 B $3.59 B $3.53 B Total Debt / Equity 3.9x 4.1x 5.7x Total Debt / (TTM Adjusted EBITDA + TTM Collections applied to principal balance)1 2.8x 2.9x 3.1x 1) See appendix for reconciliation
Slide 27: Q2 2019 Improvement in Cost-to-Collect Reflects Higher Proportion of Call Center & Digital Collections
Q2 2019 IMPROVEMENT IN COST-TO-COLLECT PRIMARILY REFLECTS A HIGHER PROPORTION OF CALL CENTER & DIGITAL COLLECTIONS Overall Cost-to-Collect1 45% 41.5% 39.6% 40% 38.4% 38.5% 37.5% 36.0% 36.4% 36.6% Q2 2019 Q2 2018 35% Location CTC CTC 30% 25% United States 39.2% 40.8% 20% Europe 28.8% 29.1% 15% Other