Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q4 2022 Earnings Presentation
34 slides from Encore Capital's earnings presentation, Feb 22, 2023
Slide 1: Fourth Quarter 2022 Investor Presentation
Fourth Quarter 2022 Investor Presentation Encore Capital Group, Inc. February 22, 2023 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 2022 – A Strong Year o Our Business and Our Strategy o Financial Results o Priorities and Outlook for 2023
Slide 4: 2022 – A Strong Year
Encore Capital Group, Inc. 4 2022 – A Strong Year ● Strong operational performance drove 2022 earnings per share that was second only to an extraordinary 2021 o Collections reverting to pre-pandemic levels ● Q4 results impacted by 1.5% reduction to ERC forecast and certain one- time tax items ● Port
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 lending continues to grow; well above pre-pandemic levels in the U.S.
Encore Capital Group, Inc. 6 Credit card lending continues to grow; well above pre-pandemic levels in the U.S. while the U.K. recovery is slower 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
Slide 7: The rise in consumer credit card delinquency rates in the U.S. is becoming more evident
Encore Capital Group, Inc. 7 The rise in consumer credit card delinquency rates in the U.S. is becoming more evident U.S. Bankcard Account Delinquency Rates Source: TransUnion: TU Credit Industry Insights Report – Q4 2022 “DPD” = Days past due
Slide 8: With U.S. market supply rising, MCM deployments have returned to pre-pandemic levels
Encore Capital Group, Inc. 8 With U.S. market supply rising, MCM deployments have returned to pre-pandemic levels and returns are growing again MCM Purchases (in $M) 134 159 170 136 102 94 116 177 169 200+ 2017 2018 2019 2020 2021 Q1 Q2 Q3 Q4 Q1 o Market supply in the U.S. is growing • lending well
Slide 9: Cabot's performance in 2022 was impacted by fewer opportunities to purchase portfolios
Encore Capital Group, Inc. 9 Cabot’s performance in 2022 was impacted by fewer opportunities to purchase portfolios at attractive returns o Cabot collections of $553M in 2022 declined 14% compared to 2021 as reported, and declined 5% in constant currency, primarily due to lower portfolio purchasing
Slide 10: Adjusted EBITDA + Collections Applied to Principal Balance
Encore Capital Group, Inc. 0 200 400 600 800 1,000 1,200 1,400 1,600 2018 2019 2020 2021 2022 Adjusted EBITDA Collections applied to principal balance 10 Continued significant cash generation despite lower portfolio purchases during the pandemic and lower recent collections Adjusted EBITDA + Collect
Slide 11: Continue to deliver strong returns
Encore Capital Group, Inc. 11 Continue to deliver strong returns 10.1% 10.8% 12.5% 15.2% 11.7% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2018 2019 2020 2021 2022 Pre-Tax Return on Invested Capital1 ROIC takes into account both the performance of our collections operation and our ability to price risk a
Slide 12: Leverage below the midpoint of our target range
Encore Capital Group, Inc. Target Leverage Ratio Range 12 Leverage below the midpoint of our target range 4.3x 3.4x 2.7x 2.5x 2.5x 2.8x 2.7x 2.4x 1.9x 2.4x 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 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1
Slide 13: Detailed Financial Discussion
Encore Capital Group, Inc. 13 Detailed Financial Discussion
Slide 14: Key Financial Measures by Year
Encore Capital Group, Inc. 14 Key Financial Measures by Year 2022 2021 2022 vs. 2021 Collections $1.91B $2.31B -17% Revenues $1.40B $1.61B -13% Portfolio Purchases $801M $665M +20% ERC1 $7.56B $7.75B -3% Operating Expenses $936M $981M -5% Effective tax rate2 37.4% 19.5% +1790bps GAAP Net Income3 $19
Slide 15: Q4 2022 Key Financial Measures
Encore Capital Group, Inc. 15 Q4 2022 Key Financial Measures Q4 2022 Q4 2021 Q4 2022 vs. Q4 2021 Collections $436M $522M -16% Revenues $234M $357M -35% Portfolio Purchases $225M $183M +23% Operating Expenses $236M $233M +1% Effective Tax Rate1 -59.3% 10.6% N/A GAAP Net Income2 -$73M $76M -196% GAAP
Slide 16: 2022 global collections declined 17% as reported
Encore Capital Group, Inc. 16 2022 global collections declined 17% as reported, and 14% in constant currency, as reversion to pre-pandemic level continues Note: Global collections in 2022 were 103% (105% in constant currency), U.S. collections were 112% and Europe collections were 87% (94% in consta
Slide 17: 2022 revenues declined 13% compared to 2021
Encore Capital Group, Inc. 17 2022 revenues declined 13% compared to 2021, reverting to pre-pandemic levels Revenues by Geography (in $M) 2018 2019 2020 2021 2022 United States Europe Other 1,398 1,614 1,501 1,3981,362
Slide 18: Our funding structure is well diversified
Encore Capital Group, Inc. 18 Our funding structure is well diversified Debt Maturity Profile at December 31, 2022 (in $M) 375 363 748 173 100 662 424 39212 29 475 1,448 - 748 0 200000000 400000000 600000000 800000000 1E+09 1.2E+09 1.4E+09 1.6E+09 2023 2024 2025 2026 2027 2028 As of December 31, 202
Slide 19: Our Financial Priorities
Encore Capital Group, Inc. 19 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 20: Well-positioned to capitalize on opportunities ahead
Encore Capital Group, Inc. 20 Well-positioned to capitalize on opportunities ahead Encore’s Strong Position Looking Ahead o Strong global balance sheet with low leverage and ample liquidity o Solid cash generation o Disciplined purchasing history with back book of strong returns o 2023 already indic
Slide 21: Appendix
Encore Capital Group, Inc. 21 Appendix
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) 2018 2019 2020 2021 2022 GAAP net income, as reported $ 109,736 $ 168,909 $ 212,524 $ 351,201 $ 194,564 Interest expense 237,355 217,771 209,356 169,647 153,308 Loss on extinguishment of de
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)) Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 GAAP net income (loss), as reported $ 94,765 $ 96,787 $ 83,566 $ 76,083 $ 175,749 $ 60,439 $ 31,494 $ (73,118) Interest expe
Slide 25: Calculation of ROIC
Encore Capital Group, Inc. 25 Calculation of ROIC Reconciliation of Adjusted Income from Operations (Unaudited, in $ thousands, except percentages) 2018 2019 2020 2021 2022 Numerator GAAP Income from operations $ 405,300 $ 446,345 $ 533,562 $ 633,272 $ 462,174 Adjustments:1 Acquisition, integration
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) Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Dec 31, 2022 Numerator GAAP Income from operations $ 633,272 $ 729,971 $ 67
Slide 27: Reconciliation of Adjusted Income from Operations
Encore Capital Group, Inc. 27 Reconciliation of Adjusted Income from Operations (Unaudited, in $ thousands) Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Numerator GAAP Income from operations $ 168,314 $ 174,287 $ 166,647 $ 124,023 $ 265,014 $ 118,948 $ 80,517 $ (2,305) 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: Debt/Equity and Leverage Ratio
Encore Capital Group, Inc. 29 Debt/Equity and Leverage Ratio 2021 2022 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Debt / Equity1 2.5x 2.2x 2.0x 2.5x 2.4x 2.3x 2.3x 2.5x Leverage Ratio2 2.1x 1.9x 1.8x 1.9x 1.9x 2.0x 2.1x 2.4x 1) GAAP Borrowings ÷ Total Encore Capital Group, Inc. stockholders’ equity 2) Leverage Ratio d
Slide 30: Impact of Fluctuations in Foreign Currency Exchange Rates
Encore Capital Group, Inc. 30 Impact of Fluctuations in Foreign Currency Exchange Rates Note: Constant Currency figures are calculated by employing Q4 2021 foreign currency exchange rates to recalculate Q4 2022 results and FY2021 foreign currency exchange rates to recalculate FY2022 results. All con
Slide 31: Cash Efficiency Margin
Encore Capital Group, Inc. 31 Cash Efficiency Margin 2,116 2,153 2,227 2,428 2,006 54.8% 55.8% 56.5% 59.6% 53.3% 2018 2019 2020 2021 2022 LTM Cash Receipts LTM Cash Efficiency Margin LTM Cash Efficiency Margin and LTM Cash Receipts (in $M) Note: Last Twelve Months (“LTM”) Cash Efficiency Margin defi
Slide 32: Calculation of Cash Efficiency Margin
Encore Capital Group, Inc. 32 Calculation of Cash Efficiency Margin Note: Cash Efficiency Margin defined as (Cash receipts – Operating expenses) ÷ Cash receipts, where Cash receipts = Collections + Servicing revenue (Unaudited, in $ thousands, except percentages) 2018 2019 2020 2021 2022 Collections
Slide 33: 2022 Cash Collections and Revenue Reconciliation
Encore Capital Group, Inc. 33 2022 Cash Collections and Revenue Reconciliation 1,912 1,882 1,202 -29 -680 0 500 1000 1500 2000 Cash Collections Recoveries Above Forecast (Over Performance) Expected Cash Collections Portfolio Amortization Revenue from Receivable Portfolios 2022 Collections and Revenu
Slide 34: Components of Debt Purchasing Revenue in 2022
Encore Capital Group, Inc. 34 Components of Debt Purchasing Revenue in 2022 1,202 1,296 +29 +64 0 200 400 600 800 1000 1200 1400 Revenue from Receivable Portfolios Recoveries Above Forecast (Over Performance) Changes in Expected Future Recoveries Debt Purchasing Revenue 2022 Debt Purchasing Revenue