Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q2 2022 Earnings Presentation
32 slides from Encore Capital's earnings presentation, Aug 3, 2022
Slide 1: Second Quarter 2022 Financial Results
Second Quarter 2022 Financial Results Encore Capital Group, Inc. August 3, 2022 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: Q2 2022 Highlights
Encore Capital Group, Inc. 3 Q2 2022 Highlights o Q2 earnings driven by strong U.S. collections o Increase in future collections expectations in the U.S. led to higher period revenues o Global portfolio purchases were $173M, up 21% compared to Q2 2021 o Portfolio supply increasing, particularly in t
Slide 4: Our Business and Our Strategy
Encore Capital Group, Inc. 4 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 5: Credit card lending continues to grow; now above pre-pandemic levels in the U.S.
Encore Capital Group, Inc. 5 Credit card lending continues to grow; now above pre-pandemic levels in the U.S. 60 65 70 75 80 85 90 95 100 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20Sep-20 Oct-20 Nov-20Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21Sep-21 Oct-21 Nov-
Slide 6: Market Focus: MCM collections in Q2 were higher than expected
Encore Capital Group, Inc. 6 Market Focus: MCM collections in Q2 were higher than expected MCM Collections (in $M) Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 371 407 o MCM collections of $355M in Q2 declined 19% compared to Q2 2021, primarily due to normalizing consumer behavior and lower portfolio pur
Slide 7: Market Focus: Cabot delivered solid performance in Q2
Encore Capital Group, Inc. 7 Market Focus: Cabot delivered solid performance in Q2 o Cabot collections of $142M in Q2 declined 16% compared to Q2 2021, primarily due to currency impacts and lower portfolio purchasing in recent quarters o Cabot’s portfolio purchases were $57M compared to $53M in Q2 2
Slide 8: Competitive Advantage: Continued significant cash generation
Encore Capital Group, Inc. 0 200 400 600 800 1,000 1,200 1,400 1,600 2019 2020 2021 LTM Q2 2022 Adjusted EBITDA Collections applied to principal balance 8 Competitive Advantage: Continued significant cash generation Adjusted EBITDA + Collections Applied to Principal Balance (in $M) 1 1) See appendix
Slide 9: Competitive Advantage: Delivering the best returns in the debt buying industry
Encore Capital Group, Inc. 9 Competitive Advantage: Delivering the best returns in the debt buying industry 10.8% 12.5% 15.2% 16.8% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2019 2020 2021 LTM Q2 2022 Pre-Tax Return on Invested Capital1 o ROIC takes into account both the performance of our collections
Slide 10: Balance Sheet Strength: Leverage remains at the low end of our target range
Encore Capital Group, Inc. Target Leverage Ratio Range 10 Balance Sheet Strength: Leverage remains at the low end of our target range 4.3x 3.4x 2.7x 2.2x 2.5x 2.3x2.8x 2.7x 2.4x 1.9x 1.9x 2.0x 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 20
Slide 11: Detailed Financial Discussion
Encore Capital Group, Inc. 11 Detailed Financial Discussion
Slide 12: Q2 2022 Key Financial Measures
Encore Capital Group, Inc. 12 Q2 2022 Key Financial Measures Q2 2022 vs. Q2 2021 Collections $498M -19% Revenues $357M -17% Portfolio Purchases $173M +21% ERC1 $7.56B -7% Operating Expenses $238M -6% GAAP Net Income2 $60M -37% GAAP EPS $2.29 -25% LTM Pre-Tax ROIC3 16.8% +180 bps Leverage Ratio4 2.0x
Slide 13: Collections of $498M in Q2 2022 were higher than expected
Encore Capital Group, Inc. 13 Collections of $498M in Q2 2022 were higher than expected Note: Year-to-date global collections through Q2 2022 were 107%, U.S. collections were 116% and Europe collections were 91% of the Dec 31, 2021 portfolio ERC forecast for the period, respectively, for portfolios
Slide 14: Revenue was $357M in Q2 2022, down 17% compared to Q2 2021
Encore Capital Group, Inc. 14 Revenue was $357M in Q2 2022, down 17% compared to Q2 2021 Revenues by Geographic Location (in $M) Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 United States Europe Other 357 428 413 357 500
Slide 15: Our funding structure is well diversified
Encore Capital Group, Inc. 15 Our funding structure is well diversified Debt Maturity Profile at June 30, 2022 (in $M) 367 365 739 173 100 547 426 20 212 29 467 1,338 - 739 2022 2023 2024 2025 2026 2027 2028 Note: At June 30, 2022, LTV Ratio (loan-to-value) = 38.6% (72.5% covenant), FCCR (Fixed Char
Slide 16: Our Financial Priorities
Encore Capital Group, Inc. 16 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 17: Appendix
Encore Capital Group, Inc. 17 Appendix
Slide 18: Key Financial Measures by Year
Encore Capital Group, Inc. 18 Key Financial Measures by Year 2019 2020 2021 Collections $2.03B $2.11B $2.31B Revenues $1.40B $1.50B $1.61B Portfolio Purchases $1.00B $0.66B $0.66B ERC1 $7.83B $8.53B $7.75B GAAP Net Income2 $168M $212M $351M GAAP EPS $5.33 $6.68 $11.26 Pre-Tax ROIC3 10.8% 12.5% 15.2%
Slide 19: Key Financial Measures by Quarter
Encore Capital Group, Inc. 19 Key Financial Measures by Quarter 1) 180-month Estimated Remaining Collections 2) Attributable to Encore 3) See appendix for calculation of Pre-Tax ROIC (Return on Invested Capital) 4) LTM GAAP ROAE (Return on Average Equity) defined as LTM GAAP net income ÷ average sto
Slide 20: Debt/Equity and Leverage Ratios
Encore Capital Group, Inc. 20 Debt/Equity and Leverage Ratios 2021 2022 Q1 Q2 Q3 Q4 Q1 Q2 Debt / Equity1 2.5x 2.2x 2.0x 2.5x 2.4x 2.3x Leverage Ratio2 2.1x 1.9x 1.8x 1.9x 1.9x 2.0x 1) GAAP Borrowings ÷ Total Encore Capital Group, Inc. stockholders’ equity 2) Leverage Ratio defined as Net Debt ÷ (LTM
Slide 21: Non-GAAP Financial Measures
Encore Capital Group, Inc. 21 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 22: Reconciliation of Adjusted EBITDA to GAAP Net Income
Encore Capital Group, Inc. 22 Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, in $ thousands) 2019 2020 2021 GAAP net income, as reported $ 168,909 $ 212,524 $ 351,201 Interest expense 217,771 209,356 169,647 Loss on extinguishment of debt 8,989 40,951 9,300 Interest income (3,693)
Slide 23: Reconciliation of Adjusted EBITDA to GAAP Net Income (Quarterly)
Encore Capital Group, Inc. 23 Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, in $ thousands)) Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 GAAP net income (loss), as reported $ 55,107 $ 37,212 $ 94,765 $ 96,787 $ 83,566 $ 76,083 $ 175,749 $ 60,439 Interest expens
Slide 24: Calculation of ROIC
Encore Capital Group, Inc. 24 Calculation of ROIC Reconciliation of Adjusted Income from Operations (Unaudited, in $ thousands, except percentages) 2019 2020 2021 Numerator GAAP Income from operations $ 446,345 $ 533,562 $ 633,272 Adjustments:1 CFPB settlement fees2 --- 15,009 --- Acquisition, integ
Slide 25: Calculation of ROIC (Last Twelve Months)
Encore Capital Group, Inc. 25 Calculation of ROIC Reconciliation of Adjusted Income from Operations Last Twelve Months Ended (Unaudited, in $ thousands, except percentages) Jun 30, 2021 Sep 30, 2021 Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Numerator GAAP Income from operations $ 609,269 $ 633,462 $ 63
Slide 26: Reconciliation of Adjusted Income from Operations
Encore Capital Group, Inc. 26 Reconciliation of Adjusted Income from Operations (Unaudited, in $ thousands) Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Numerator GAAP Income from operations $ 142,455 $ 124,213 $ 168,314 $ 174,287 $ 166,647 $ 124,023 $ 265,014 $ 118,948 Adjustment
Slide 27: Reconciliation of Net Debt
Encore Capital Group, Inc. 27 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 28: Impact of Fluctuations in Foreign Currency Exchange Rates
Encore Capital Group, Inc. 28 Impact of Fluctuations in Foreign Currency Exchange Rates Note: Constant Currency figures are calculated by employing Q2 2021 foreign currency exchange rates to recalculate Q2 2022 results. All constant currency values are calculated based on the average exchange rates
Slide 29: Cash Efficiency Margin
Encore Capital Group, Inc. 29 Cash Efficiency Margin 2,422 2,449 2,428 2,335 2,212 57.8% 58.9% 59.6% 58.6% 57.0% Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 LTM Cash Receipts LTM Cash Efficiency Margin LTM Cash Efficiency Margin and LTM Cash Receipts (in $M) Note: Last Twelve Months (“LTM”) Cash Efficie
Slide 30: Calculation of Cash Efficiency Margin
Encore Capital Group, Inc. 30 Calculation of Cash Efficiency Margin Note: Last Twelve Months (“LTM”) Cash Efficiency Margin defined as (LTM Cash receipts – LTM Operating expenses) ÷ LTM Cash receipts, where Cash receipts = Collections + Servicing revenue (Unaudited, in $ thousands) Q3 2020 Q4 2020 Q
Slide 31: Cash Collections and Revenue Reconciliation
Encore Capital Group, Inc. 31 Cash Collections and Revenue Reconciliation 498 488 306 -10 -181 0 100 200 300 400 500 Cash Collections Recoveries Above Forecast (Over Performance) Expected Cash Collections Portfolio Amortization Revenue from Receivable Portfolios Q2 2022 Collections and Revenue Recon
Slide 32: Components of Debt Purchasing Revenue
Encore Capital Group, Inc. 32 Components of Debt Purchasing Revenue 306 331 +10 +15 0 50 100 150 200 250 300 350 Revenue from Receivable Portfolios Recoveries Above Forecast (Over Performance) Changes in Expected Future Recoveries Debt Purchasing Revenue Q2 2022 Debt Purchasing Revenue (in $M) 1. Re