Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q3 2018 Earnings Presentation
26 slides from Encore Capital's earnings presentation, Nov 7, 2018
Slide 1: Encore Capital Group, Inc. Q3 2018 Earnings Call
Exhibit 99.1 Encore Capital Group, Inc. Q3 2018 EARNINGS CALL
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
Slide 3: Encore Highlights
ENCORE HIGHLIGHTS We set new global records for collections and ERC in Q3 2018 We completed the Cabot acquisition in July, transforming Encore into a clear leader in the U.S. and the U.K., the world’s two most important markets for our industry Proprietary and Confidential 3
Slide 4: Encore's Third Quarter 2018 GAAP EPS Was $0.69
ENCORE’S THIRD QUARTER 2018 GAAP EPS WAS $0.69 GAAP EPS1 GAAP Net Income1 Economic EPS2 Adjusted Income2 $20.7 $35.8 $0.69 million $1.19 million Collections $499 million Estimated Remaining Collections of $7.2 billion 1) From continuing operations attributable to Encore 2) Please refer to Appendix f
Slide 5: 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 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
Slide 6: U.S. Market for Debt Purchasing Remains Favorable
U.S. MARKET FOR DEBT PURCHASING REMAINS FAVORABLE U.S. Market Federal Reserve reports revolving credit in the U.S. reached another all-time high in August 2018 Recent commentary from banks confirmed that credit card outstandings continue to grow We believe loan losses will continue to rise in
Slide 7: On Track to Deploy More Capital in the U.S.
WE REMAIN ON TRACK TO DEPLOY MORE CAPITAL IN THE U.S. IN 2018 THAN IN ANY OTHER YEAR IN OUR HISTORY Encore’s U.S. Business Encore deployed $123M in Q3 2018 compared to $111M in Q3 a year ago We secured valuable forward flow opportunities that will carry forward into 2019 Operational innovation
Slide 8: In Europe, We're Seeing an Active Market
IN EUROPE, WE’RE SEEING AN ACTIVE MARKET WITH MANY EXCITING OPPORTUNITIES TO WIN BUSINESS AT ATTRACTIVE RETURNS European Market Q3 was characterized by strong deal flow in the U.K. and in several other European countries Following record portfolio sales in 2017, banks continue to clean up their
Slide 9: Completion of the Cabot Acquisition Clarified Our European Structure
THE COMPLETION OF THE CABOT ACQUISITION HAS CLARIFIED OUR EUROPEAN STRUCTURE & SOLIDIFIED OUR GLOBAL STRATEGIC POSITION Encore’s European Business We deployed $115M of capital in new portfolio purchases in Q3 with the majority in the U.K. Our growing servicing capabilities are providing us with
Slide 10: Detailed Financial Discussion
Detailed Financial Discussion 10
Slide 11: Worldwide Deployments in Q3 of $249M
WORLDWIDE DEPLOYMENTS IN Q3 OF $249M BRING OUR YTD TOTAL TO $885M, COMPARED TO $757M AT THIS TIME A YEAR AGO Q3 2018 Deployments $M Europe United $115 States $123 Other $11 Total $249 11
Slide 12: Record Collections in the Third Quarter Up 13%
RECORD COLLECTIONS IN THE THIRD QUARTER WERE UP 13%, REFLECTING GROWTH IN THE U.S. AND EUROPE Collections by Geography Collections by Channel Collection Sites Legal Collections Collection Agencies $M United States Europe Other $M 499 496 499 500 489 496 500 489 438 441 446 443 438 441 446 443 397 39
Slide 13: Q3 Global Revenue Growth of 10%
Q3 GLOBAL REVENUE GROWTH OF 10% REFLECTS STRONG COLLECTIONS GROWTH IN THE UNITED STATES Revenue by Geography $M 400 350 327 337 350 317 307 291 300 271 272 250 200 150 100 50 0 2016 2017 2017 2018 2017 2018 2017 2018 Q4 Q1 Q2 Q3 United States Europe Other 13
Slide 14: Estimated Remaining Collections Grew $653 Million in Last 12 Months
ESTIMATED REMAINING COLLECTIONS GREW $653 MILLION IN THE LAST 12 MONTHS, TO A RECORD $7.2 BILLION Total Estimated Remaining Collections 7,221 $M 7,000 6,568 6,000 5,654 5,733 5,128 5,000 4,000 3,000 2,000 1,000 0 September 2014 September 2015 September 2016 September 2017 September 2018 United State
Slide 15: GAAP EPS of $0.69 and Economic EPS of $1.19
ENCORE DELIVERED GAAP EPS OF $0.69 AND ECONOMIC EPS OF $1.19 IN THE THIRD QUARTER OF 2018 Three Months Ended September 30, 2018 $1.50 $0.09 ($0.08) $0.07 ($0.11) $1.25 $0.41 $1.19 $1.19 $1.00 $0.12 $0.75 $0.69 No shares deducted $0.50 in Q3 2018 $0.25 $0.00 GAAP net income Convertible notes Acquisit
Slide 16: Summary
SUMMARY Encore’s Q3 2018 results include records for cash collections and ERC U.S. market for debt purchasing remains favorable Our expanded capacity and innovative collections operation position us well to capture the U.S. market’s attractive returns We completed the acquisition of Cabot, t
Slide 17: Q&A
CAPITAL GROUP Nee Q&A \=—- encore 4 17
Slide 18: Appendix
\=—- encore 4 CAPITAL GROUP Cee Appendix 18
Slide 19: 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 20: 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 September 30, 2018 2017 Per Diluted Per Diluted Per Diluted Per Diluted $ Share – Share – $
Slide 21: Reconciliation of Adjusted EBITDA
RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 03/31/13 06/30/13 09/30/13 12/31/13 03/31/14 06/30/14 09/30/14 12/31/14 GAAP net income (loss), as reported $ 19,448 $ 11,012 $ 21,064 $ 22,216 $ 18,830 $ 21,353 $ 30
Slide 22: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 03/31/15 06/30/15 09/30/15 12/31/15 03/31/16 06/30/16 09/30/16 12/31/16 GAAP net income (loss), as reported $ 29,967 $ 25,185 $ (9,364) $ 1,596 $ 26,607 $
Slide 23: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 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 $ 14,979 $ 19,076 $ 42,144 $ 2,779 $ 23,713 $ 26,974 $
Slide 24: 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 12/31/16 3/31/17 6/30/17 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 GAAP total ope
Slide 25: Impact of Fluctuations in Foreign Currency Exchange Rates
IMPACT OF FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES (Unaudited, In Millions, except per share amounts) Constant Three Months Ended 9/30/18 As Reported Currency Revenue, adjusted by net allowances $ 337 $ 338 Operating expenses $ 239 $ 241 Net income* $ 21 $ 20 Adjusted net income* $ 36 $ 35 GA
Slide 26: Cost-to-Collect for Portfolio Purchasing & Recovery Business in Q3 2018
ENCORE’S COST-TO-COLLECT FOR PORTFOLIO PURCHASING & RECOVERY BUSINESS IN Q3 2018 WAS 36.0% COMPARED TO 38.4% IN Q3 2017 Overall Cost-to-Collect1 45% 41.5% 40.3% 40% 38.4% 37.8% 38.5% 37.5% 38.4% 36.0% 35% Q3 2018 Q3 2017 Location 30% CTC CTC 25% United States 40.7% 42.9% 20% Europe 24.4% 28.4% 15% 1