Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q2 2020 Earnings Presentation
27 slides from Encore Capital's earnings presentation, Aug 5, 2020
Slide 1: Q2 2020 Earnings Call
Exhibit 99.1 Encore Capital Group, Inc. Q2 2020 EARNINGS CALL
Slide 2: Cautionary Note About Forward-Looking Statements
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS The statements in this presentation that are not performance or achievements of the Company and historical facts, including, most importantly, those its subsidiaries to be materially different from any statements preceded by, or that include, the word
Slide 3: Second Quarter 2020 Key Financial Measures
SECOND QUARTER 2020 KEY FINANCIAL MEASURES Estimated Remaining Global Collections Global Revenues Collections (ERC) $508M $426M $8.4B down 1% up 23% up 13% Record GAAP EPS1 GAAP Net Income1 Economic EPS2 Adjusted Income2 $4.13 $130M $4.34 $137M Record Record Record Record Record earnings driven by s
Slide 4: Our Adjusted EBITDA Reflects Record Cash Generation
OUR ADJUSTED EBITDA REFLECTS RECORD CASH GENERATION Adjusted EBITDA + Collections applied to principal balance (Trailing 12-Months, in $M) $1,200 $1,000 $800 $600 $400 $200 $0 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 Adjusted EBITDA - TTM Co
Slide 5: Record MCM Collections of $386M in Q2
RECORD MCM COLLECTIONS OF $386M IN Q2 REFLECT STRONG GROWTH IN CALL CENTER & DIGITAL COLLECTIONS CHANNEL MCM (U.S.) Business MCM Collections by Channel and CTC MCM business remains fully operational 40.8% MCM collections grew 16% to a record $386M 39.2% with Call Center & Digital collections up
Slide 6: Outlook for U.K. and Europe Has Improved
OUR OUTLOOK FOR THE U.K. AND EUROPE HAS IMPROVED AS Q2 COLLECTIONS EXCEEDED OUR EXPECTED CURVES Cabot (Europe) Business Through a combination of work-from-home and social distancing, we are fully operational in all markets Cabot’s collections in the second quarter were 17% higher than our Q2 exp
Slide 7: Detailed Financial Discussion
Detailed Financial Discussion 7
Slide 8: Q2 Portfolio Purchases Reflect Better Supply in U.S. Than Europe
Q2 PORTFOLIO PURCHASES REFLECT BETTER SUPPLY IN THE U.S. THAN IN EUROPE AND OUR CONTINUED FOCUS ON RETURNS Q2 2020 Deployments Europe $23M United States $125M Total $148M 8
Slide 9: $508M in Collections Down 1% As Reported
$508M IN COLLECTIONS WERE DOWN 1% AS REPORTED, BUT GREW 2% AFTER ADJUSTING FOR CONSTANT CURRENCY AND THE SALE OF BAYCORP Collections by Geographic Location 527 499 499 499 514 515 508 500 484 400 300 $M 200 100 0 2018 2019 2018 2019 2019 2020 2019 2020 Q3 Q4 Q1 Q2 United States Europe Other 9
Slide 10: Higher Than Expected Collections Drove Revenue Increase in Q2
SIGNIFICANTLY HIGHER THAN EXPECTED COLLECTIONS DROVE REVENUE INCREASE IN Q2 Revenues by Geographic Location 450 426 400 356 349 348 347 347 350 337 289 300 250 $M 200 150 100 50 0 2018 2019 2018 2019 2019 2020 2019 2020 Q3 Q4 Q1 Q2 United States Europe Other 10
Slide 11: ERC of $8.4B Up $949M Compared to Q2 Last Year
ERC OF $8.4B UP $949M COMPARED TO Q2 LAST YEAR AND UP 14% AFTER ADJUSTING FOR CURRENCY Total Estimated Remaining Collections1 8,382 8,000 7,278 7,433 6,000 $M 4,000 2,000 0 Q2 2018 Q2 2019 Q2 2020 United States Europe Other REO 1) Q2 2018 ERC of $7,216M and Q2 2019 ERC of $7,350 as reported did not
Slide 12: Record GAAP EPS of $4.13 and Record Economic EPS of $4.34
ENCORE REPORTED RECORD GAAP EPS OF $4.13 AND RECORD ECONOMIC EPS OF $4.34 IN THE SECOND QUARTER OF 2020 Three Months Ended June 30, 2020 $5.00 $0.15 $0.06 ($0.13) $4.50 $0.13 $4.34 $4.34 $4.13 $4.00 $3.50 $3.00 $2.50 No shares deducted $2.00 in Q2 2020 $1.50 $1.00 $0.50 $0.00 GAAP net income per Con
Slide 13: Strong Balance Sheet and Liquidity Provide Financial Flexibility
AFTER TWO+ YEARS OF STEADY IMPROVEMENT, OUR STRONG BALANCE SHEET AND LIQUIDITY PROVIDE FINANCIAL FLEXIBILITY Over the past 2+ years: ERC versus Leverage ► Debt/Equity ratio reduced from 5.9x to 3.2x 9,000 6.00 ► Uptick in Q1 2020 primarily due to CECL 8,000 implementation and foreign currency effect
Slide 14: Steady Focus on Our Three Strategic Priorities
OUR STEADY FOCUS ON OUR THREE STRATEGIC PRIORITIES HAS POSITIONED US WELL FOR THE FUTURE Market Focus ● Our returns in the U.S. continue to rise; expect significant increase in charge-off supply Concentrating on the valuable ● Expecting meaningful increase in supply in the U.S. and U.K. markets U.K.
Slide 15: Second Quarter 2020 Summary
SECOND QUARTER 2020 SUMMARY Q2 was an outstanding operating period for Encore with record revenues, profits and cash generation Our investments in training, compliance and technology have enabled us to put health and safety first while remaining fully operational in each of our markets Our str
Slide 16: Appendix
—_ encore CAPITAL GROUP Appendix 16
Slide 17: 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 18: 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 June 30, 2020 June 30, 2019 Per Diluted Share Per Diluted Share $ – Accounting & $ – Accounting & Econo
Slide 19: Reconciliation of Adjusted EBITDA
RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 12/31/14 03/31/15 06/30/15 09/30/15 12/31/15 03/31/16 06/30/16 09/30/16 GAAP net income (loss), as reported $ 27,957 $ 29,967 $ 25,185 $ (9,364) $ 1,596 $ 26,607 $ 30
Slide 20: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 12/31/16 03/31/17 06/30/17 09/30/17 12/31/17 03/31/18 06/30/18 09/30/18 GAAP net income (loss), as reported $ 11,323 $ 14,979 $ 19,076 $ 42,144 $ 2,779 $
Slide 21: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 12/31/18 03/31/19 06/30/19 09/30/19 12/31/19 03/31/20 06/30/20 GAAP net income (loss), as reported $ 46,033 $ 49,442 $ 36,822 $ 39,413 $ 43,232 $ (10,579)
Slide 22: 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 23: 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 9/30/18 12/31/18 03/31/19 06/30/19 09/30/19 12/31/19 03/31/20 06/30/20 GAAP tota
Slide 24: Impact of Fluctuations in Foreign Currency Exchange Rates
IMPACT OF FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES (Unaudited, In Millions, except per share amounts) Three Months Ended Constant As Reported 06/30/20 Currency Encore Consolidated Revenues $426 $431 Operating expenses $206 $210 Net income1 $130 $130 Adjusted income1 $137 $138 GAAP EPS1 $4.13
Slide 25: Encore's Leverage Ratios
ENCORE’S LEVERAGE RATIOS Leverage Ratios Encore Consolidated at 03/31/20 at 06/30/20 Debt / Equity 3.77x 3.23x Net Debt / (TTM Adjusted EBITDA + TTM Collections applied to principal balance)1 2.58x 2.42x Encore Consolidated at 03/31/19 at 06/30/19 at 09/30/19 at 12/31/19 Debt / Equity 4.12x 3.92x 3.
Slide 26: Reconciliation of Net Debt
RECONCILIATION OF NET DEBT Reconciliation of Net Debt (Unaudited, in millions) Three Months Ended 03/31/20 06/30/20 GAAP Borrowings, as reported $ 3,404 $ 3,354 Debt issuance costs and debt discounts 69 63 Cash & cash equivalents (188) (294) Client cash1 19 21 Net Debt $ 3,304 $ 3,144 03/31/19 06/30
Slide 27: Cost-to-Collect Includes 100% of Court Costs
BEGINNING IN Q1 2020, COST-TO-COLLECT INCLUDES 100% OF COURT COSTS, BRINGING ENCORE INTO ALIGNMENT WITH THE INDUSTRY Overall Cost-to-Collect1 45% 39.6% 40% 37.4% 37.8% 36.0% 36.4% 37.1% 36.6% 35% Q2 2019 Q2 2020 31.3% Location 30% CTC CTC 25% United States 39.2% 32.0% 20% Europe 28.8% 27.7% 15% Othe