Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q3 2021 Earnings Presentation
34 slides from Encore Capital's earnings presentation, Nov 3, 2021
Slide 1: Third Quarter 2021 Financial Results
Third Quarter 2021 Financial Results Encore Capital Group, Inc. November 3, 2021 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 2021 Highlights
Encore Capital Group, Inc. 3 Q3 2021 Highlights o Q3 performance driven by strong collections, particularly in our MCM business o Portfolio purchases were $168M at a purchase price multiple of 2.3x o Repurchased $88M of ECPG shares over the first three quarters of 2021, which includes $41M in Q3 o A
Slide 4: Recap - Our Financial Priorities
Encore Capital Group, Inc. 4 Recap - 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 Bala
Slide 5: Accelerating return of capital via $300 million tender offer
Encore Capital Group, Inc. 5 Accelerating return of capital via $300 million tender offer Size / Format Up to $300 million / Modified “Dutch Auction” Price No less than $52.00 and no greater than $60.00 Launch Date November 4, 2021 Expiration Date1 December 2, 2021 o Consistent with our balance shee
Slide 6: Our Business and Our Strategy
Encore Capital Group, Inc. 6 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 7: Market Focus: Q3 for MCM characterized by continued strong collections
Encore Capital Group, Inc. 7 Market Focus: Q3 for MCM characterized by continued strong collections MCM Collections by Channel (in $M) and Cost-to-Collect 39.8% 36.9% 35.4% 0 250 500 Q3 2019 Q3 2020 Q3 2021 Call Center & Digital Legal Collections Collection Agencies Cost-to-Collect 407 391 331 57% 6
Slide 8: Market Focus: Cabot delivered solid performance in the third quarter
Encore Capital Group, Inc. 8 Market Focus: Cabot delivered solid performance in the third quarter Cabot Collections (in $M) and Cost-to-Collect 29.0% 28.1% 31.0% 0 Q3 2019 Q3 2020 Q3 2021 Collections Cost-to-Collect 155 141 150 o Quarterly collections of $155M grew 10% compared to Q3 2020 o 12% incr
Slide 9: Competitive Advantage: Continued strong cash generation
Encore Capital Group, Inc. 0 200 400 600 800 1,000 1,200 1,400 1,600 FY 2018 FY 2019 FY 2020 LTM Q3 2021 Adjusted EBITDA Collections applied to principal balance 9 Competitive Advantage: Continued strong cash generation Adjusted EBITDA + Collections applied to principal balance (in $M) o Our cash ge
Slide 10: Competitive Advantage: We expect to deliver strong returns through the credit cycle
Encore Capital Group, Inc. 10 Competitive Advantage: We expect to deliver strong returns through the credit cycle 10.1% 10.8% 12.5% 15.2% -1% 1% 3% 5% 7% 9% 11% 13% 15% 17% FY 2018 FY 2019 FY 2020 LTM Q3 2021 Pre-Tax Return on Invested Capital1 ROIC is an important measure of our overall performance
Slide 11: Balance Sheet Strength: Strong cash generation and reduced borrowings in Q3
Encore Capital Group, Inc. Target Leverage Range 11 Balance Sheet Strength: Strong cash generation and reduced borrowings in Q3 drove a further reduction in our leverage ratio 4.3x 3.4x 2.7x 2.0x2.8x 2.7x 2.4x 1.8x 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
Slide 12: Detailed Financial Discussion
Encore Capital Group, Inc. 12 Detailed Financial Discussion
Slide 13: Q3 2021 Key Financial Measures
Encore Capital Group, Inc. 13 Q3 2021 Key Financial Measures Q3 2021 vs. Q3 2020 Collections $567M +5% Revenues $413M +2% Portfolio Purchases $168M -1% ERC1 $7.88B -7% Operating Expenses $246M -6% GAAP Net Income2 $84M +53% GAAP EPS $2.66 +55% LTM Pre-Tax ROIC3 15.2% +250 bps Leverage Ratio4 1.8x -0
Slide 14: Collections of $567M were 5% higher than Q3 last year
Encore Capital Group, Inc. 14 Collections of $567M were 5% higher than Q3 last year 1) Includes collections only related to portfolios purchased prior to 12/31/2020. U.S. collections were at 126% and Europe collections were at 103% of our 12/31/2020 ERC forecast, respectively. Collections by Geograp
Slide 15: Revenues of $413M were 2% higher than Q3 last year
Encore Capital Group, Inc. 15 Revenues of $413M were 2% higher than Q3 last year Revenues by Geographic Location (in $M) 0 100 200 300 400 201 9 202 0 202 0 202 1 202 0 202 1 202 0 202 1 Q4 Q1 Q2 Q3 United States Europe Other 383 417 428 413 348 289 426 404
Slide 16: ERC of $7.9B lower by 7% compared to Q3 last year
Encore Capital Group, Inc. 16 ERC of $7.9B lower by 7% compared to Q3 last year 1) Q3 2019 ERC of $7,298M as reported did not include $77M of ERC related to Encore’s real estate-owned (REO) business. Total Estimated Remaining Collections1 (in $M) 0 2,000 4,000 6,000 8,000 Q3 2019 Q3 2020 Q3 2021 Uni
Slide 17: We further strengthened our diversified funding structure in Q3
Encore Capital Group, Inc. 17 We further strengthened our diversified funding structure in Q3 We amended our global senior facility in Q3 to reduce LIBOR and EURIBOR floors to zero and extend the maturity from 2024 to 2025 Debt Maturity Profile at September 30, 2021 (in $M) 405 404 817 150 173 100 1
Slide 18: Our Mission, Vision and Values
Encore Capital Group, Inc. 18 Our Mission, Vision and Values Mission Creating pathways to economic freedom Vision We help make credit accessible by partnering with consumers to restore their financial health Values We Care We put people first and engage with honesty, empathy and respect We Find a Be
Slide 19: Appendix
Encore Capital Group, Inc. 19 Appendix
Slide 20: Key Financial Measures by Year
Encore Capital Group, Inc. 20 Key Financial Measures by Year 2018 2019 2020 Collections $1.97B $2.03B $2.11B Revenues $1.36B $1.40B $1.50B Portfolio Purchases $1.13B $1.00B $0.66B ERC1 $7.22B $7.83B $8.53B GAAP Net Income2 $116M $168M $212M GAAP EPS $4.06 $5.33 $6.68 Pre-Tax ROIC3 10.1% 10.8% 12.5%
Slide 21: Key Financial Measures by Quarter
Encore Capital Group, Inc. 21 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 22: Debt/Equity and Leverage Ratios
Encore Capital Group, Inc. 22 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 23: Non-GAAP Financial Measures
Encore Capital Group, Inc. 23 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 24: Reconciliation of Adjusted EBITDA to GAAP Net Income
Encore Capital Group, Inc. 24 Reconciliation of Adjusted EBITDA to GAAP Net Income 12/31/2018 12/31/2019 12/31/2020 GAAP net income, as reported $ 109,736 $ 168,909 $ 212,524 Interest expense 237,355 217,771 209,356 Loss on extinguishment of debt 2,693 8,989 40,951 Interest income (3,345) (3,693) (2
Slide 25: Reconciliation of Adjusted EBITDA to GAAP Net Income (Quarterly)
Encore Capital Group, Inc. 25 Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, in $ thousands) Three Months Ended 12/31/19 03/31/20 06/30/20 09/30/20 12/31/20 03/31/21 06/30/21 09/30/21 GAAP net income (loss), as reported $ 43,232 $ (10,579) $ 130,784 $ 55,107 $ 37,212 $ 94,765 $ 96,
Slide 26: Calculation of ROIC
Encore Capital Group, Inc. 26 Calculation of ROIC Reconciliation of Adjusted Income from Operations (in $ thousands) Last Twelve Months Ended LTM 12/31/2018 LTM 12/31/2019 LTM 12/31/2020 Numerator GAAP Income from operations $ 405,300 $ 446,345 $ 533,562 Adjustments:1 CFPB settlement fees2 --- --- 1
Slide 27: Calculation of ROIC
Encore Capital Group, Inc. 27 Calculation of ROIC Reconciliation of Adjusted Income from Operations (in $ thousands) Last Twelve Months Ended LTM 09/30/2020 LTM 12/31/2020 LTM 03/31/2021 LTM 06/30/2021 LTM 09/30/2021 Numerator GAAP Income from operations $ 522,559 $ 533,562 $ 654,675 $ 609,269 $ 633
Slide 28: Reconciliation of Adjusted Income from Operations
Encore Capital Group, Inc. 28 Reconciliation of Adjusted Income from Operations (in $ thousands) Three Months Ended 12/31/2019 03/31/2020 06/30/2020 09/30/2020 12/31/2020 03/31/2021 06/30/2021 09/30/2021 Numerator GAAP Income from operations $ 113,210 $47,202 $ 219,692 $ 142,455 $ 124,213 $ 168,314
Slide 29: Reconciliation of Net Debt
Encore Capital Group, Inc. 29 Reconciliation of Net Debt (in $ millions) Three Months Ended 03/31/21 06/30/21 09/30/21 GAAP Borrowings, as reported $ 3,152 $ 2,999 $2,796 Debt issuance costs and debt discounts 68 64 60 Cash & cash equivalents (185) (199) (158) Client cash1 23 24 28 Net Debt $ 3,058
Slide 30: Reconciliation of Adjusted Operating Expenses related to Portfolio Purchasing and Recovery Business
Encore Capital Group, Inc. 30 Reconciliation of Adjusted Operating Expenses related to Portfolio Purchasing and Recovery Business (Unaudited, in $ thousands) Three Months Ended 12/31/19 03/31/20 06/30/20 09/30/20 12/31/20 03/31/21 06/30/21 09/30/21 GAAP total operating expenses, as reported $ 234,58
Slide 31: Cost-to-Collect includes 100% of court costs
Encore Capital Group, Inc. 31 Beginning in Q1 2020, Cost-to-Collect includes 100% of court costs, bringing Encore into alignment with the industry 1) Cost-to-Collect = Adjusted operating expenses / collections. See appendix for reconciliation of Adjusted operating expenses to GAAP. 37.8% 39.1% 37.1%
Slide 32: Impact of Fluctuations in Foreign Currency Exchange Rates
Encore Capital Group, Inc. 32 Impact of Fluctuations in Foreign Currency Exchange Rates Note: Constant Currency figures are calculated by employing Q3 2020 foreign currency exchange rates to recalculate Q3 2021 results. All constant currency values are calculated based on the average exchange rates
Slide 33: Cash Collections and Revenue Reconciliation
Encore Capital Group, Inc. 33 Cash Collections and Revenue Reconciliation 567 490 316 -77 -174 0 100 200 300 400 500 600 Cash Collections Recoveries Above Forecast (Over Performance) Expected Cash Collections Portfolio Amortization Revenue from Receivable Portfolios Q3 2021 Collections and Revenue R
Slide 34: Components of Debt Purchasing Revenue
Encore Capital Group, Inc. 34 Components of Debt Purchasing Revenue 316 382 +77 -11 0 50 100 150 200 250 300 350 400 450 Revenue from Receivable Portfolios Recoveries Above Forecast (Over Performance) Changes in Expected Future Period Recoveries Debt Purchasing Revenue Q3 2021 Debt Purchasing Revenu