Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q4 2021 Earnings Presentation
38 slides from Encore Capital's earnings presentation, Feb 23, 2022
Slide 1: Fourth Quarter 2021 Financial Results
Fourth Quarter 2021 Financial Results Encore Capital Group, Inc. February 23, 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: Today's Call
Encore Capital Group, Inc. 3 Today’s Call o 2021 – An Exceptional Year o Our Business and Our Strategy o Financial Results o Priorities and Outlook for 2022 and Beyond
Slide 4: FY2021 - An Exceptional Year
Encore Capital Group, Inc. 4 FY2021 - An Exceptional Year ● Exceptional performance driven by record collections o Achieved all-time highs for ROIC and earnings ● Portfolio purchases were $665M at a purchase price multiple of 2.4x o We are seeing early signs of credit normalization ● Further strengt
Slide 5: Our Business and Our Strategy
Encore Capital Group, Inc. 5 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 6: Credit card balances as leading indicator of supply returning to pre-COVID levels
Encore Capital Group, Inc. 6 Using credit card balances as a leading indicator, anticipate supply to eventually return to pre-COVID levels - and beyond 60 65 70 75 80 85 90 95 100 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 M
Slide 7: Disciplined portfolio purchasing while volumes followed supply dynamics
Encore Capital Group, Inc. 7 Remained disciplined in purchasing portfolios at strong returns while our volumes largely followed supply dynamics 0 25 50 75 100 125 150 175 200 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 U.S. Europe Encore Quarterly
Slide 8: Market Focus: 2021 for MCM characterized by exceptional collections performance
Encore Capital Group, Inc. 8 Market Focus: 2021 for MCM characterized by exceptional collections performance MCM Collections by Channel (in $M) and Cost-to-Collect 40.3% 37.4% 35.2% 0 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2019 2020 2021 Call Center & Digital Legal Collections Collect
Slide 9: MCM's purchase price multiples continue to expand
Encore Capital Group, Inc. 9 MCM’s purchase price multiples continue to expand 1.8 2.0 2.1 2.2 2.4 2.4 2.1 2.4 2.3 2.5 2.7 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2016 2017 2018 2019 2020 2021 Initial Multiple Current Multiple MCM Portfolio Purchase Price Multiples (by vintage) 1) Initial multiple is establishe
Slide 10: Market Focus: Cabot delivered solid performance in 2021
Encore Capital Group, Inc. 10 Market Focus: Cabot delivered solid performance in 2021 o Cabot collections of $645M in 2021 grew 16% compared to 2020 o The mix of collections compared to 2020 led to higher cost-to-collect for the year o Portfolio purchases of $256M in 2021 more than doubled in compar
Slide 11: Competitive Advantage: Continued strong cash generation
Encore Capital Group, Inc. 0 200 400 600 800 1,000 1,200 1,400 1,600 2019 2020 2021 Adjusted EBITDA Collections applied to principal balance 11 Competitive Advantage: Continued strong cash generation Adjusted EBITDA + Collections applied to principal balance (in $M) o Our cash generation is driven b
Slide 12: Competitive Advantage: Delivering the best returns in the debt buying industry
Encore Capital Group, Inc. 12 Competitive Advantage: Delivering the best returns in the debt buying industry 10.8% 12.5% 15.2% -1% 1% 3% 5% 7% 9% 11% 13% 15% 17% 2019 2020 2021 Pre-Tax Return on Invested Capital1 o ROIC takes into account both the performance of our collections operation and our abi
Slide 13: Balance Sheet Strength: Leverage remains at low end of target range
Encore Capital Group, Inc. Target Leverage Ratio Range 13 Balance Sheet Strength: Leverage remains at low end of our target range despite repurchasing 23% of our shares in 2021 4.3x 3.4x 2.7x 2.5x 2.8x 2.7x 2.4x 1.9x 0 1 2 3 4 5 6 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 20
Slide 14: Our Financial Priorities
Encore Capital Group, Inc. 14 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 15: Bought back more than 7M ECPG shares in 2021
Encore Capital Group, Inc. 15 Bought back more than 7M ECPG shares in 2021, or 23% of shares outstanding a year ago ECPG Shares1 Repurchased in 2021 (in M shares) o Through open market repurchases and the tender offer, returned $390 million of capital to shareholders in 2021 o $179M remaining in our
Slide 16: Detailed Financial Discussion
Encore Capital Group, Inc. 16 Detailed Financial Discussion
Slide 17: Key Financial Measures by Year
Encore Capital Group, Inc. 17 Key Financial Measures by Year 2019 2020 2021 2021 vs. 2020 Collections $2.03B $2.11B $2.31B +9% Revenues $1.40B $1.50B $1.61B +8% Portfolio Purchases $1.00B $0.66B $0.66B +1% ERC1 $7.83B $8.53B $7.75B -9% GAAP Net Income2 $168M $212M $351M +66% GAAP EPS $5.33 $6.68 $11
Slide 18: Q4 2021 Key Financial Measures
Encore Capital Group, Inc. 18 Q4 2021 Key Financial Measures Q4 2021 vs. Q4 2020 Collections $522M -3% Revenues $357M -7% Portfolio Purchases $183M +44% Operating Expenses $233M -10% Effective Tax Rate1 11% -1100 bps GAAP Net Income2 $76M +104% GAAP EPS $2.53 +116% 1) The effective tax rate in Q4 20
Slide 19: 2021 global collections grew 9%
Encore Capital Group, Inc. 19 2021 global collections grew 9% Note: Global collections in 2021 were 116% of ERC as of 12/31/2020 excluding collections on portfolios purchased in 2021. U.S. collections were 124% and Europe collections were 100% of our 12/31/2020 ERC forecast, respectively. Collection
Slide 20: 2021 revenues of $1.6B grew 8% compared to 2020
Encore Capital Group, Inc. 20 2021 revenues of $1.6B grew 8% compared to 2020 Revenues by Geography (in $M) 0 500 1,000 1,500 2019 2020 2021 United States Europe Other 1,398 1,614 1,501
Slide 21: Further strengthened our diversified funding structure in 2021
Encore Capital Group, Inc. 21 Further strengthened our diversified funding structure in 2021 In mid-2021, refinanced last of the legacy Cabot bonds with new Encore senior secured notes at a significantly lower coupon Debt Maturity Profile at December 31, 2021 (in $M) 398 406 810 150 173 100 407 473
Slide 22: Our approach to ESG with a commitment to transparency
Encore Capital Group, Inc. 22 We approach Environmental, Social and Governance (ESG) with a commitment to transparency Our ESG strategy reflects the issues that are important to our stakeholders as well as those that are critical to ensuring the long-term success of our business Formalized CEO and B
Slide 23: Priorities and Outlook for 2022 and beyond
Encore Capital Group, Inc. 23 Priorities and Outlook for 2022 and beyond 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
Slide 24: Appendix
Encore Capital Group, Inc. 24 Appendix
Slide 25: Key Financial Measures by Quarter
Encore Capital Group, Inc. 25 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 26: Debt/Equity and Leverage Ratios
Encore Capital Group, Inc. 26 Debt/Equity and Leverage Ratios at 03/31/18 at 06/30/18 at 09/30/18 at 12/31/18 Debt / Equity1 5.9x 5.7x 4.6x 4.3x Leverage Ratio2 3.2x 3.0x 2.9x 2.8x at 03/31/19 at 06/30/19 at 09/30/19 at 12/31/19 Debt / Equity1 4.1x 3.9x 3.7x 3.4x Leverage Ratio2 2.8x 2.7x 2.7x 2.7x
Slide 27: Non-GAAP Financial Measures
Encore Capital Group, Inc. 27 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 28: Reconciliation of Adjusted EBITDA to GAAP Net Income
Encore Capital Group, Inc. 28 Reconciliation of Adjusted EBITDA to GAAP Net Income 12/31/2019 12/31/2020 12/31/2021 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) (2,397) (1
Slide 29: Reconciliation of Adjusted EBITDA to GAAP Net Income (Quarterly)
Encore Capital Group, Inc. 29 Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, in $ thousands) Three Months Ended 03/31/20 06/30/20 09/30/20 12/31/20 03/31/21 06/30/21 09/30/21 12/31/21 GAAP net income (loss), as reported $ (10,579) $ 130,784 $ 55,107 $ 37,212 $ 94,765 $ 96,787 $ 83,
Slide 30: Calculation of ROIC
Encore Capital Group, Inc. 30 Calculation of ROIC Reconciliation of Adjusted Income from Operations (in $ thousands) Last Twelve Months Ended LTM 12/31/2019 LTM 12/31/2020 LTM 12/31/2021 Numerator GAAP Income from operations $ 446,345 $ 533,562 $ 633,272 Adjustments:1 CFPB settlement fees2 --- 15,00
Slide 31: Calculation of ROIC (Quarterly LTM)
Encore Capital Group, Inc. 31 Calculation of ROIC Reconciliation of Adjusted Income from Operations (in $ thousands) Last Twelve Months Ended LTM 12/31/2020 LTM 03/31/2021 LTM 06/30/2021 LTM 09/30/2021 LTM 12/31/2021 Numerator GAAP Income from operations $ 533,562 $ 654,675 $ 609,269 $ 633,462 $ 633
Slide 32: Reconciliation of Adjusted Income from Operations
Encore Capital Group, Inc. 32 Reconciliation of Adjusted Income from Operations (in $ thousands) Three Months Ended 03/31/2020 06/30/2020 09/30/2020 12/31/2020 03/31/2021 06/30/2021 09/30/2021 12/31/2021 Numerator GAAP Income from operations $47,202 $ 219,692 $ 142,455 $ 124,213 $ 168,314 $ 174,287
Slide 33: Reconciliation of Net Debt
Encore Capital Group, Inc. 33 Reconciliation of Net Debt (in $ millions) Three Months Ended 03/31/21 06/30/21 09/30/21 12/31/21 GAAP Borrowings, as reported $ 3,152 $ 2,999 $2,796 $2,997 Debt issuance costs and debt discounts 68 64 60 58 Cash & cash equivalents (185) (199) (158) (190) Client cash1 2
Slide 34: Reconciliation of Adjusted Operating Expenses
Encore Capital Group, Inc. 34 Reconciliation of Adjusted Operating Expenses related to Portfolio Purchasing and Recovery Business (Unaudited, in $ thousands) Three Months Ended 03/31/20 06/30/20 09/30/20 12/31/20 03/31/21 06/30/21 09/30/21 12/31/21 GAAP total operating expenses, as reported $ 241,87
Slide 35: Cost-to-Collect
Encore Capital Group, Inc. 35 Cost-to-Collect 1) Cost-to-Collect = Adjusted operating expenses / collections. See appendix for reconciliation of Adjusted operating expenses to GAAP. 37.1% 33.4% 31.3% 33.4% 34.9% 34.4% 39.1% 35.6% 2020 2021 2020 2021 2020 2021 2020 2021 Q1 Q2 Q3 Q4 Overall Cost-to-Co
Slide 36: Impact of Fluctuations in Foreign Currency Exchange Rates
Encore Capital Group, Inc. 36 Impact of Fluctuations in Foreign Currency Exchange Rates Note: Constant Currency figures are calculated by employing Q4 2020 foreign currency exchange rates to recalculate Q4 2021 results and FY2020 foreign currency exchange rates to recalculate FY2021 results. All con
Slide 37: 2021 Cash Collections and Revenue Reconciliation
Encore Capital Group, Inc. 37 2021 Cash Collections and Revenue Reconciliation 2,307 1,981 1,288 -326 -694 0 500 1000 1500 2000 2500 Cash Collections Recoveries Above Forecast (Over Performance) Expected Cash Collections Portfolio Amortization Revenue from Receivable Portfolios 2021 Collections and
Slide 38: Components of Debt Purchasing Revenue in 2021
Encore Capital Group, Inc. 38 Components of Debt Purchasing Revenue in 2021 1,288 1,487 +326 -127 0 200 400 600 800 1000 1200 1400 1600 1800 Revenue from Receivable Portfolios Recoveries Above Forecast (Over Performance) Changes in Expected Future Period Recoveries Debt Purchasing Revenue 2021 Debt