Encore Capital Group Inc · NASDAQ:ECPG

Encore Capital — Q4 2018 Earnings Presentation

34 slides from Encore Capital's earnings presentation, 2019

  1. Slide 1: Q4 and Full-Year 2018 Earnings Call

    Encore Capital Group, Inc. Q4 AND FULL-YEAR 2018 EARNINGS CALL

  2. 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

  3. Slide 3: 2018 Accomplishments

    2018 ACCOMPLISHMENTS U.S. Portfolio Purchases Global Collections Global Revenue1 $638M $1.97B $1.36B up 19% up 11% up 15% Record Record Record GAAP EPS2 GAAP Net Income2 Economic EPS3 Adjusted Income3 $4.06 $116M $4.98 $142M up 28% up 39% up 23% up 34% Record Record Record Record Completed acquisiti

  4. Slide 4: We grew collections in the U.S. by 11% in 2018 to a record $1.22 billion

    WE GREW COLLECTIONS IN THE U.S. BY 11% IN 2018 TO A RECORD $1.22 BILLION Encore’s U.S. Operations Encore U.S. Collections by Channel  U.S. collections grew by 15% in the quarter compared to Q4 2017 Call Center & Digital Legal Collections Collection Agencies  U.S. call center & digital $M collectio

  5. Slide 5: We increased capital deployments in the U.S. market by 19% to a record $638M

    WE INCREASED CAPITAL DEPLOYMENTS IN THE U.S. MARKET BY 19% TO A RECORD $638M Encore’s U.S. Deployments Encore U.S. Cumulative Deployments  We continue to capitalize on a favorable purchasing environment 2017 Cumulative U.S. Deployments 2018 Cumulative U.S. Deployments in the U.S. that provides attr

  6. Slide 6: U.S. revolving consumer debt reached another all-time high level in December 2018

    U.S. REVOLVING CONSUMER DEBT REACHED ANOTHER ALL-TIME HIGH LEVEL IN DECEMBER 2018 U.S. Revolving Consumer Credit Outstanding1 1100 1000 900 800 700 $B 600 500 400 300 200 Initial 100 Projections 0 1985Q1 1985Q4 1986Q3 1987Q2 1988Q1 1988Q4 1989Q3 1990Q2 1991Q1 1991Q4 1992Q3 1993Q2 1994Q1 1994Q4 1995Q

  7. Slide 7: When unemployment begins to rise, we expect a further rise in charge-offs

    WHEN THE U.S. UNEMPLOYMENT RATE BEGINS TO RISE, WE EXPECT TO SEE A FURTHER RISE IN CHARGE-OFFS U.S. Unemployment Rate1 vs. U.S. Credit Card Net Charge-Off Rate2 12% U.S. Unemployment Rate U.S. Credit Card Net Charge-Off Rate 10% 8% 6% 4% 2% Charge-off rate has been rising despite the continued decli

  8. Slide 8: In Europe, we're seeing an active market with opportunities at attractive returns

    IN EUROPE, WE’RE SEEING AN ACTIVE MARKET WITH OPPORTUNITIES TO WIN BUSINESS AT ATTRACTIVE RETURNS European Market  We continued to see growth in the number of portfolio sales by banks in the fourth quarter, consisting of both spot market transactions and forward flow opportunities  Banks continue

  9. Slide 9: Transformational Cabot transaction provides us a leading platform in Europe

    TRANSFORMATIONAL CABOT TRANSACTION PROVIDES US A LEADING PLATFORM IN EUROPE Encore’s European Business  We purchased $455M of portfolios in Encore European Collections by Channel 2018 with the majority in the U.K.  Collections from our European debt $M 635 purchasing business grew 15% in 2018 600

  10. Slide 10: Detailed Financial Discussion

    Detailed Financial Discussion 10

  11. Slide 11: Encore's fourth quarter 2018 GAAP EPS was $1.50

    ENCORE’S FOURTH QUARTER 2018 GAAP EPS WAS $1.50 GAAP EPS1 GAAP Net Income1 Economic EPS2 Adjusted Income2 $1.50 $47.0M $1.45 $45.5M Record Record Record Record 1) From continuing operations attributable to Encore 2) Please refer to Appendix for reconciliation of Economic EPS and Adjusted Income to G

  12. Slide 12: Our adjusted EBITDA reflects our strong cash generation

    OUR ADJUSTED EBITDA REFLECTS OUR STRONG CASH GENERATION (in $000’s) Adjusted EBITDA + Collections applied to principal balance Encore Adjusted EBITDA - Trailing 12-Months (Trailing 12-Months) $1,250,000 $1,000,000 $750,000 $500,000 $250,000 $0 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3

  13. Slide 13: 2018 deployments reflect a record year of portfolio purchasing in the U.S.

    2018 DEPLOYMENTS REFLECT A RECORD YEAR OF PORTFOLIO PURCHASING IN THE U.S. Q4-2018 Deployments 2018 Deployments $M Europe Europe $106 $455 Other $7 Other $39 United States United States $134 $638 Total $247 Total $1,132 13

  14. Slide 14: Collections in the fourth quarter were up 11%

    COLLECTIONS IN THE FOURTH QUARTER WERE UP 11%, REFLECTING GROWTH IN THE U.S. AND EUROPE Collections by Geography Collections by Channel United States Europe Other Call Center & Digital Legal Collections Collection Agencies $M $M 489 496 499 484 489 496 499 484 500 500 441 446 443 438 441 446 443 438

  15. Slide 15: Annual global collections grew 11% and reached an all-time high in 2018

    ENCORE’S ANNUAL GLOBAL COLLECTIONS GREW 11% AND REACHED AN ALL-TIME HIGH IN 2018 Collections by Geography $M 1,968 2,000 1,768 1,800 1,701 1,686 1,607 1,600 1,400 1,200 1,000 800 600 400 200 0 2014 2015 2016 2017 2018 United States Europe Other 15

  16. Slide 16: Q4 global revenue growth of 10%

    Q4 GLOBAL REVENUE GROWTH OF 10% REFLECTS STRONG COLLECTIONS GROWTH IN THE UNITED STATES AND EUROPE Revenue1 by Geography $M 350 349 350 327 337 307 317 300 291 272 250 200 150 100 50 0 2017 2018 2017 2018 2017 2018 2017 2018 Q1 Q2 Q3 Q4 United States Europe Other 1) Net of allowances and allowance r

  17. Slide 17: 2018 global revenue growth of 15% to a record $1.36 billion

    2018 GLOBAL REVENUE GROWTH OF 15%, TO A RECORD $1.36 BILLION, PRIMARILY REFLECTS OUR STRONG GROWTH IN EUROPE Revenue1 by Geography $M $M 1,400 1,362 1,187 1,200 1,130 1,043 1,029 1,000 800 600 400 200 0 2014 2015 2016 2017 2018 United States Europe Other 1) Net of Allowances and allowance reversals

  18. Slide 18: Estimated remaining collections grew $209 million to $7.2 billion

    ESTIMATED REMAINING COLLECTIONS GREW $209 MILLION IN THE LAST 12 MONTHS, TO $7.2 BILLION Total Estimated Remaining Collections $M 7,500 6,955 7,164 6,000 5,711 5,840 5,203 4,500 3,000 1,500 0 December 2014 December 2015 December 2016 December 2017 December 2018 United States Europe Other 18

  19. Slide 19: GAAP EPS of $1.50 and Economic EPS of $1.45 in Q4 2018

    ENCORE REPORTED GAAP EPS OF $1.50 AND ECONOMIC EPS OF $1.45 IN THE FOURTH QUARTER OF 2018 Three Months Ended December 31, 2018 $1.75 $0.06 ($0.17) $0.13 $1.50 ($0.03) ($0.04) $1.50 $1.45 $1.45 $1.25 $1.00 No $0.75 shares deducted in $0.50 Q4 2018 $0.25 $0.00 GAAP net income per Convertible and Amort

  20. Slide 20: GAAP EPS of $4.06 and Economic EPS of $4.98 in 2018

    ENCORE REPORTED GAAP EPS OF $4.06 AND ECONOMIC EPS OF $4.98 IN 2018 Twelve Months Ended December 31, 2018 $6.00 $0.29 $0.10 ($0.18) ($0.20) $0.33 ($0.32) $0.40 $4.98 $4.98 $5.00 $0.50 $4.06 $4.00 $3.00 No shares deducted in $2.00 2018 $1.00 $0.00 GAAP net Convertible and Acquisition, Loss on Amortiz

  21. Slide 21: Summary and Outlook

    SUMMARY AND OUTLOOK  Encore’s 2018 results include records for cash collections, revenues and earnings  We deployed a record level of capital in the attractive U.S. market in 2018, and call center and digital collections were up 25% 2018 Summary  In Europe, debt purchasing collections grew 15%, a

  22. Slide 22: Q&A

    — encore CAPITAL GROUP Q&A 22

  23. Slide 23: Appendix

    — encore CAPITAL GROUP Appendix 23

  24. Slide 24: 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 December 31, 2018 2017 Per Diluted Per Diluted Per Diluted Per Diluted $ Share – Share – $ S

  25. Slide 25: 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), Twelve Months Ended December 31, 2018 December 31, 2017 Per Diluted Share Per Diluted Share Per Diluted Share P

  26. Slide 26: Reconciliation of Adjusted EBITDA

    RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 06/30/13 09/30/13 12/31/13 03/31/14 06/30/14 09/30/14 12/31/14 03/31/15 GAAP net income (loss), as reported $ 11,012 $ 21,064 $ 22,216 $ 18,830 $ 21,353 $ 30,138 $ 27

  27. Slide 27: Reconciliation of Adjusted EBITDA (continued)

    RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 06/30/15 09/30/15 12/31/15 03/31/16 06/30/16 09/30/16 12/31/16 03/31/17 GAAP net income (loss), as reported $ 25,185 $ (9,364) $ 1,596 $ 26,607 $ 30,833 $

  28. Slide 28: Reconciliation of Adjusted EBITDA (continued)

    RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 06/30/17 09/30/17 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 GAAP net income (loss), as reported $ 19,076 $ 42,144 $ 2,779 $ 23,713 $ 26,974 $ 13,016 $

  29. Slide 29: 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 3/31/17 6/30/17 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 12/31/18 GAAP total ope

  30. Slide 30: 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) Twelve Months Ended 12/31/17 12/31/18 GAAP total operating expenses, as reported $ 862,498 $ 956,73

  31. Slide 31: 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 Year Ended Constant As Reported As Reported 12/31/18 Currency 12/31/18 Currency Revenue $349 $355 Revenue $1,362 $1,345 Operating expenses $233 $237 Operating expe

  32. Slide 32: 2018 improvement in cost-to-collect

    2018 IMPROVEMENT IN COST-TO-COLLECT PRIMARILY REFLECTS A HIGHER PROPORTION OF CALL CENTER AND DIGITAL COLLECTIONS Overall Cost-to-Collect1 Q4 2018 Q4 2017 Location CTC CTC 45% 41.5% United States 44.4% 49.5% 40.3% 39.6% 40% 37.8% 38.5% 37.5% 38.4% Europe 29.6% 26.3% 36.0% 35% Other 46.8% 49.6% 30% E

  33. Slide 33: Encore's Leverage Ratios

    ENCORE’S LEVERAGE RATIOS Leverage Ratios Encore Cabot Consolidated at 12/31/18 at 12/31/18 Total Debt $3.49 B $1.83 B Total Debt / (Adjusted EBITDA + Collections applied to principal balance)1 2.86x 4.05x 1) Ratio calculation method is materially consistent with covenants in Encore’s restated credit

  34. Slide 34: Encore's Share Count

    ENCORE’S SHARE COUNT Encore Shares Weighted Average Period Shares Outstanding (Diluted – in 000’s) Period ending March 31, 2017 (3 months) 26,087 Period ending June 30, 2017 (3 months) 26,391 Period ending September 30, 2017 (3 months) 26,736 Period ending December 31, 2017 (3 months) 26,405 Period

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