Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q1 2019 Earnings Presentation
28 slides from Encore Capital's earnings presentation, May 8, 2019
Slide 1: Encore Capital Group Q1 2019 Earnings Call
Exhibit 99.1 Encore Capital Group, Inc. Q1 2019 EARNINGS CALL May 8, 2019
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: First Quarter 2019 Highlights
FIRST QUARTER 2019 HIGHLIGHTS Estimated Remaining Global Collections Global Revenue1 Collections $514M $347M $7.3B up 5% up 6% up 3% Record Record GAAP EPS2 GAAP Net Income2 Economic EPS3 Adjusted Income3 $1.57 $49.3M $1.46 $45.9M up 89% up 126% up 49% up 78% Record Record Record Record 1) Total Rev
Slide 4: Our Adjusted EBITDA Reflects Our Strong Cash Generation
OUR ADJUSTED EBITDA REFLECTS OUR STRONG CASH GENERATION Adjusted EBITDA + Collections applied to principal balance Encore Adjusted EBITDA(Trailing 12-Months) - Trailing 12-Months $1,250 $1,000 $750 $M $500 $250 $0 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q182Q183Q1
Slide 5: U.S. Market Continues to Provide Opportunities to Purchase Portfolios
U.S. MARKET CONTINUES TO PROVIDE OPPORTUNITIES TO PURCHASE PORTFOLIOS WITH ATTRACTIVE RETURNS According to the most recent data from the Federal Reserve, U.S. Revolving Consumer Debt reached another all-time high level in February 2019 According to data compiled by Bloomberg Intelligence, the U.
Slide 6: MCM (U.S.) Collections Grew 10% in Q1 2019 to a Record $330 Million
MCM (U.S.) COLLECTIONS FROM OUR DEBT PURCHASING BUSINESS GREW 10% IN Q1 2019 TO A RECORD $330 MILLION Encore’s U.S. Business Solid start to 2019 with Q1 U.S. MCM (U.S.) Collections by Channel deployments of $174M, consisting primarily of fresh paper Call Center & Digital Legal Collections Collecti
Slide 7: Continued Innovation and Consumer-Centric Approach Driving Performance Gains
CONTINUED INNOVATION AND OUR CONSUMER-CENTRIC APPROACH ARE DRIVING STRONG PERFORMANCE GAINS MCM (U.S.) Collections Performance Payer Rate Cumulative Cash Liquidation Rate by Purchase Vintage by Purchase Vintage (first 12 months, indexed to 100) (first 12 months, indexed to 100) 144 Avg. of 2016-2018
Slide 8: Near-Record Unsecured Consumer Indebtedness in the U.K.
LIKE IN THE U.S., NEAR-RECORD UNSECURED CONSUMER INDEBTEDNESS IN THE U.K. EXPECTED TO DRIVE MEANINGFUL MARKET OPPORTUNITY UK Unsecured Consumer Lending and Total Charge-Off Rate Total Unsecured Lending (excluding Student Loans) (£M) Derived Total Unsecured Quarterly Charge-OffCharge-Offs Rate Lendin
Slide 9: Supply in the European Market Is Attractive and Growing
SUPPLY IN THE EUROPEAN MARKET IS ATTRACTIVE AND GROWING European Market In the U.K., we expect record consumer indebtedness will drive meaningful supply growth In the medium term, we are seeing early signs of increasing default rates We are also seeing evidence of banks selling their charged-o
Slide 10: Cabot Provides Leadership Across the Credit Management Product Range
CABOT PROVIDES LEADERSHIP ACROSS THE CREDIT MANAGEMENT PRODUCT RANGE Debt Debt Collection Business Process Purchasing Agency Outsourcing Largest debt purchaser Top ranked DCA for Largest U.K. based in terms of U.K. financial 73% (by volume) of collections BPO services ERC portfolio we service for pr
Slide 11: Cabot Delivered Strong Performance in the First Quarter of 2019
CABOT DELIVERED STRONG FINANCIAL AND OPERATIONAL PERFORMANCE IN THE FIRST QUARTER OF 2019 Encore’s European Business European deployments totaled $84M in the first quarter and were concentrated primarily in the U.K. Collections from debt purchasing in Europe grew 6% in constant currency compared
Slide 12: CFPB Issued a Notice of Proposed Rulemaking on Debt Collection
YESTERDAY THE CFPB ISSUED A NOTICE OF PROPOSED RULEMAKING (NPRM) ON DEBT COLLECTION The CFPB intends to make rules on industry practices for debt collection Gives the public and our industry a chance to provide feedback before the rules are final (effective 1 year after final rules are issued)
Slide 13: Detailed Financial Discussion
Detailed Financial Discussion 13
Slide 14: Portfolio Purchases in Q1 Reflect Emphasis on Deploying Capital in the U.S.
PORTFOLIO PURCHASES IN Q1 REFLECT OUR CURRENT EMPHASIS ON DEPLOYING MORE CAPITAL IN THE U.S. MARKET Q1 2019 Deployments Europe $84M United States $174M Other $4M Total $262M 14
Slide 15: U.S. Collections Grew 10% in the First Quarter
U.S. COLLECTIONS GREW 10% IN THE FIRST QUARTER Collections by Geography Collections by Channel Call Center & Digital Legal Collections Collection Agencies $M United States Europe Other $M 514 496 499 514 496 499 500 484 489 500 484 489 446 443 438 446 443 438 400 400 300 300 200 200 100 100 0 0 2017
Slide 16: U.S. Revenue Grew 10% in the First Quarter
U.S. REVENUE GREW 10% IN THE FIRST QUARTER Revenue1 by Geography $M 350 349 347 350 337 327 307 317 300 291 250 200 150 100 50 0 2017 2018 2017 2018 2017 2018 2018 2019 Q2 Q3 Q4 Q1 United States Europe Other 1) Net of allowances and allowance reversals 16
Slide 17: Estimated Remaining Collections Grew $199 Million to $7.3 Billion
ESTIMATED REMAINING COLLECTIONS GREW $199 MILLION IN THE LAST 12 MONTHS, TO $7.3 BILLION Total Estimated Remaining Collections 7,276 7,500 7,077 5,849 6,000 5,665 5,080 4,500 $M 3,000 1,500 0 March 2015 March 2016 March 2017 March 2018 March 2019 United States Europe Other 17
Slide 18: Encore Reported GAAP EPS of $1.57 and Economic EPS of $1.46
ENCORE REPORTED GAAP EPS OF $1.57 AND ECONOMIC EPS OF $1.46 IN THE FIRST QUARTER OF 2019 Three Months Ended March 31, 2019 $2.00 $0.06 $0.04 ($0.05) ($0.29) $1.75 $0.13 $1.57 $1.46 $1.46 $1.50 $1.25 $1.00 No shares $0.75 deducted in $0.50 Q1 2019 $0.25 $0.00 GAAP net income per Convertible and Amort
Slide 19: Q1 2019 Summary and Outlook
Q1 2019 SUMMARY AND OUTLOOK 1. Record performance Record Encore earnings, global collections and ERC Record MCM (U.S.) collections with call center & digital collections up 15% 2. Strong leading indicators of future growth in charge-offs and supply Reflected in record levels of consumer indebt
Slide 20: Q&A
—= encore Q&A 20
Slide 21: Appendix
—= encore Appendix 21
Slide 22: 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 March 31, 2019 2018 Per Diluted Share Per Diluted Share $ – Accounting and $ – Accounting an
Slide 23: Reconciliation of Adjusted EBITDA
RECONCILIATION OF ADJUSTED EBITDA Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 09/30/13 12/31/13 03/31/14 06/30/14 09/30/14 12/31/14 03/31/15 06/30/15 GAAP net income (loss), as reported $ 21,064 $ 22,216 $ 18,830 $ 21,353 $ 30,138 $ 27,957 $ 29
Slide 24: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 09/30/15 12/31/15 03/31/16 06/30/16 09/30/16 12/31/16 03/31/17 06/30/17 GAAP net income (loss), as reported $ (9,364) $ 1,596 $ 26,607 $ 30,833 $ (51,946)
Slide 25: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 09/30/17 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 03/31/19 GAAP net income (loss), as reported $ 42,144 $ 2,779 $ 23,713 $ 26,974 $ 13,016 $ 46,033 $
Slide 26: 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 6/30/17 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 12/31/18 03/31/19 GAAP total op
Slide 27: Impact of Fluctuations in Foreign Currency Exchange Rates
IMPACT OF FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES (Unaudited, in millions, except per share amounts) Encore Consolidated Cabot (Europe) Three Months Ended Constant Three Months Ended Constant As Reported As Reported 3/31/19 Currency 3/31/19 Currency Revenue $347 $358 Revenue $135 $145 Operat
Slide 28: Q1 2019 Improvement in Cost-to-Collect
Q1 2019 IMPROVEMENT IN COST-TO-COLLECT PRIMARILY REFLECTS A HIGHER PROPORTION OF CALL CENTER & DIGITAL COLLECTIONS Overall Cost-to-Collect1 45% 41.5% 40.3% 39.6% 40% 37.5% 38.4% 38.5% 36.0% 36.4% Q1 2019 Q1 2018 35% Location CTC CTC 30% 25% United States 39.6% 43.6% 20% Europe 27.6% 27.4% 15% Other