Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q3 2024 Earnings Presentation
32 slides from Encore Capital's earnings presentation, Nov 6, 2024
Slide 1: Third Quarter 2024 Investor Presentation
Third Quarter 2024 Investor Presentation Encore Capital Group, Inc. November 6, 2024
Slide 2: Legal Disclaimers
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 expressions, constitute “forwa
Slide 3: MCM drives Encore's strong Q3 performance
MCM drives Encore’s strong Q3 performance U.S. market continues to grow to record levels driven by the highest U.S. charge off rate in more than 10 years combined with growth in lending MCM continues to deliver on robust U.S. opportunity with highest collections quarter since 2021 o MCM deployme
Slide 4: Our Business and Our Strategy
Our Business and Our Strategy Our Business Our Strategy Purchase NPL portfolios at attractive cash returns Market Focus Focus on the consumer and ensure the highest level of compliance Competitive Advantage Meet or exceed collection expectations Balance Sheet Strength Maintain efficien
Slide 5: Record portfolio supply driven by highest U.S. charge off rate in more than 10 years
Record portfolio supply driven by highest U.S. charge off rate in more than 10 years combined with growth in lending Outstanding U.S. Revolving Credit and U.S. Credit Card Charge Off Rate 1400 $1.36T 6% 1300 Aug 2024 1200 +$257B 5% 4.49% 1100 Q2 4% 2024 $ Billions 1000 900 3% 800 2% 700 1% 600 500 0
Slide 6: U.S. consumer credit card delinquency rates continue to grow
U.S. consumer credit card delinquency rates continue to grow U.S. Bankcard Balance Delinquency Rates 4.5% 4.0% 3.5% % of Balances Past Due 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2015 2016
Slide 7: MCM delivered its highest collections quarter since 2021
MCM delivered its highest collections quarter since 2021 MCM (U.S.) Collections (in $M) 397 402 Portfolio supply in the U.S. has surged to its highest +22% 369 level in over a decade 330 320 MCM portfolio purchases of $230M in Q3 up 28% compared to Q3 2023 at strong returns MCM collections of
Slide 8: We anticipate 2024 to be another record year of portfolio purchasing for MCM
We anticipate 2024 to be another record year of portfolio purchasing for our MCM business in the U.S. MCM Portfolio Purchases in the U.S. (in $M) 1,000 Pandemic impact 800 600 230 400 815 682 237 638 562 536 543 556 506 200 409 237 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Projected Encore
Slide 9: U.K. consumer credit continues to grow slowly; charge off rate remains low
U.K. consumer credit continues to grow slowly – having just returned to pre-pandemic level – and charge off rate remains low U.K. Consumer Credit Outstanding Balances and U.K. Annual Charge Off Rate 250 5% £230B June 200 2024 4% 150 3% £ Billions 100 1.68% 2% Q2 2024 50 1% 0 0% 2013 2014 2014 2015 2
Slide 10: Cabot's collections are stable while we focus on cost structure
Cabot’s collections are stable while we continue to focus on cost structure Cabot (Europe) Collections (in $M) Cabot collections of $148M in Q3 2024 up 10% compared to Q3 2023 +10% 149 148 137 141 Portfolio purchases of $52M in Q3 reflect our continued 135 selective approach, which has led to be
Slide 11: Global portfolio purchases up 23% over Q3 2023
Global portfolio purchases up 23% over Q3 2023 as we continue to allocate capital to U.S. opportunities, where the returns are highest Portfolio Purchases (in $M) 292 296 279 282 59 84 42 52 231 200 51 237 237 230 208 179 0 Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024 United States Europe Encore Capital
Slide 12: Collections in Q3 2024 were up 18% compared to Q3 2023
Collections in Q3 2024 were up 18% compared to Q3 2023 Collections by Geography (in $M) 547 550 511 500 465 458 149 148 141 135 137 397 402 369 330 320 0 Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024 United States Europe Other Note: Global, U.S. and Europe collections YTD thru Q3 2024 were 103%, 105% and
Slide 13: Detailed Financial Discussion
Detailed Financial Discussion Encore Capital Group, Inc. 13
Slide 14: Q3 2024 Key Financial Measures and Impacts
Q3 2024 Key Financial Measures and Impacts Q3 2024 Q3 2024 Q3 2024 Key Financial Measures Q3 2024 Q3 2023 vs. Impacts from Changes in Recoveries EPS Impact Q3 2023 Impact Collections $550M $465M +18% Recoveries above forecast $23M $0.72 Changes in expected future recoveries Revenues1 $367M $310M +19
Slide 15: Higher deployments have led to meaningful growth in cash generation
Similar to collections, the past several quarters of higher deployments has led to meaningful growth in cash generation, up 22% from Q3 2023 Encore Quarterly Cash Generation1 (in $M) 350 300 250 200 150 100 50 0 Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024 2 Adjusted EBITDA Collections applied to princip
Slide 16: Leverage continues to decrease
Leverage continues to decrease – even with substantial portfolio purchases in the U.S. Leverage 4.0x 3.0x Target 2.8x 2.9x Leverage Ratio 2.7x 2.7x Range 2.4x 2.4x 2.0x 1.9x 1.0x 1 Leverage Ratio 0.0x Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 18 18 18 18 19 19
Slide 17: Proactively managing debt maturities
Proactively managing debt maturities Debt Maturity Profile1 at September 30, 2024 (in $M) 1,400 Global Revolving Credit Facility 1,249 1,200 pro forma for expected Q4 bond redemptions 157 341 1,000 Completed 150 730 800 Oct 2024 7 334 600 490 390 230 500 401 400 100 Nov 2024 573 401 401 500 500 200
Slide 18: Revised capital allocation priorities
Revised capital allocation priorities: raised Share Repurchases above Strategic M&A Balance Sheet Objectives Capital Allocation Priorities Preserve financial flexibility Portfolio purchases at attractive returns Target leverage1 between 2.0x and 3.0x Share Repurchases Maintain a strong BB
Slide 19: We believe Encore is truly differentiated from our competitors
We believe Encore is truly differentiated from our competitors Encore is the largest player in the attractive U.S. debt buying market Our higher purchase price multiples lead to collecting more over a vintage’s lifetime, which generates more cash, more earnings and higher returns Well-diversif
Slide 20: Summary and 2024 Guidance Update
Summary Supply in U.S. market, where we are currently focused, continues to grow to record levels MCM driving global results through strong purchasing and collections growth Q3 2024 Summary In U.K./Europe, maintaining discipline, selectively deploying capital, right-sizing business Performan
Slide 21: Appendix
Appendix Encore Capital Group, Inc. 21
Slide 22: 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 23: Reconciliation of Adjusted EBITDA to GAAP Net Income
Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, in $ thousands)) Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024 GAAP net (loss) income, as reported $ (73,118) $ 18,626 $ 26,305 $ 19,339 $ (270,762) $ 23,239 $ 32,181 $ 30,643 Interest expense 42,313 46,835 49,983 50,
Slide 24: Reconciliation of Adjusted EBITDA to GAAP Net Income
Reconciliation of Adjusted EBITDA to GAAP Net Income Twelve months ending (Unaudited, in $ thousands) Sep 30, 2023 Dec 31, 2023 Mar 31, 2024 Jun 30, 2024 Sep 30, 2024 GAAP net loss, as reported $ (8,848) $ (206,492) $ (201,879) $ (196,003) $ (184,699) Interest expense 189,689 201,877 210,807 222,200
Slide 25: Calculation of ROIC Reconciliation of Adjusted Income from Operations
Calculation of ROIC Reconciliation of Adjusted Income from Operations Last Twelve Months Ended (Unaudited, in $ thousands, except percentages) Sep 30, 2023 Dec 31, 2023 Mar 31, 2024 Jun 30, 2024 Sep 30, 2024 Numerator GAAP Income from operations $ 231,423 $ 16,535 $ 29,988 $ 43,755 $ 74,327 Adjustme
Slide 26: Reconciliation of Net Debt
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 70 89 85 79 73 75 73 69 63 10
Slide 27: Debt/Equity and Leverage Ratio
Debt/Equity and Leverage Ratio 2018 2019 2020 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Debt / Equity1 5.9x 5.7x 4.6x 4.3x 4.1x 3.9x 3.7x 3.4x 3.8x 3.2x 2.9x 2.7x Leverage Ratio2 3.2x 3.0x 2.9x 2.8x 2.8x 2.7x 2.7x 2.7x 2.6x 2.4x 2.4x 2.4x 2021 2022 2023 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Debt / Equity1 2
Slide 28: Impact of Fluctuations in Foreign Currency Exchange Rates
Impact of Fluctuations in Foreign Currency Exchange Rates Three Months Ended September 30, 2024 (Unaudited, in $M, except per share amounts) As Reported Constant Currency Collections $550 $547 Revenues $367 $365 ERC1 $8,649 $8,360 Operating Expenses $261 $259 GAAP Net Income $31 $31 GAAP EPS $1.26 $
Slide 29: Cash Efficiency Margin
Cash Efficiency Margin LTM Cash Efficiency Margin and LTM Cash Receipts (in $M) 2,150 2,062 1,946 1,992 1,927 53.6% Cash Efficiency Margin 51.2% 52.2% 53.0% 51.0% is a comprehensive measure of expense efficiency We use LTM to match our long-term view of the business Q3 2023 Q4 2023 Q1 2024 Q2 20
Slide 30: Calculation of Cash Efficiency Margin
Calculation of Cash Efficiency Margin (Unaudited, in $ thousands, except percentages) LTM Q3 2023 LTM Q4 2023 LTM Q1 2024 LTM Q2 2024 LTM Q3 2024 Collections $ 1,840,373 $ 1,862,567 $ 1,911,098 $ 1,981,304 $ 2,066,233 Servicing revenue 86,482 83,136 80,930 81,029 83,908 Cash receipts (A) $ 1,926,855
Slide 31: Q3 2024 Cash Collections and Revenue Reconciliation
Q3 2024 Cash Collections and Revenue Reconciliation Q3 2024 Collections and Revenue Reconciliation (in $M) 600 +23 $527M Expected Cash Collections, equal to the sum of A Q2 2024 ERC plus expected collections from portfolios 500 purchased in Q3 2024 222 400 $23M Recoveries Above Forecast, cash collec
Slide 32: Components of Debt Purchasing Revenue in Q3 2024
Components of Debt Purchasing Revenue in Q3 2024 Q3 2024 Debt Purchasing Revenue (in $M) E1. Revenue from Receivable Portfolios is revenue from expected collections and is a formulaic calculation based on the investment in receivable balance and an effective interest rate (EIR) that is established a