Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q1 2024 Earnings Presentation
32 slides from Encore Capital's earnings presentation, May 8, 2024
Slide 1: First Quarter 2024 Investor Presentation
First Quarter 2024 Investor Presentation Encore Capital Group, Inc. May 8, 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: Solid Q1 performance driven by strong portfolio purchasing and collections
Solid Q1 performance driven by strong portfolio purchasing and collections U.S. market continues to grow to record levels as both revolving credit and charge off rate are growing simultaneously U.S. market is our primary focus o Deployed a record $237M in Q1 at strong returns o Allocating a majo
Slide 4: Our Business and Our Strategy
Our Business and Our Strategy Our Business Our Strategy o Purchase NPL portfolios at attractive cash returns o Market Focus o Focus on the consumer and ensure the highest level of compliance o Competitive Advantage o Meet or exceed collection expectations o Balance Sheet Strength o Maintain efficien
Slide 5: U.S. charge off rate hits a 10-year high and lending continues to grow
U.S. charge off rate hits a 10-year high and lending continues to grow Outstanding U.S. Revolving Credit and U.S. Credit Card Charge Off Rate $1.34T 1300 6% Mar +$237B 2024 1200 5% 1100 4.24% 4% 1000 $ Billions Q4 900 2023 3% 800 2% 700 1% 600 500 0% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Slide 6: U.S. consumer credit card delinquency rates continue to grow
U.S. consumer credit card delinquency rates continue to grow, foreshadowing a continued increase in supply of charge offs 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
Slide 7: Highly favorable U.S. purchasing market conditions continue
Highly favorable U.S. purchasing market conditions continue with robust supply and attractive portfolio pricing MCM (U.S.) Collections (in $M) Market supply growth in the U.S. continues 369 329 336 330 320 MCM portfolio purchases in Q1 were a record $237M at strong returns MCM collections of $
Slide 8: U.K. consumer credit continues to grow slowly and charge off rate remains low
U.K. consumer credit continues to grow slowly and charge off rate remains low U.K. Consumer Credit Outstanding Balances and U.K. Annual Charge Off Rate 250 Mar 5% 2024 200 £222B 4% 150 3% £ Billions Q4 2023 100 2% 1.81% 50 1% 0 0% 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020
Slide 9: We continue to be selective when purchasing portfolios in the competitive European market
We continue to be selective when purchasing portfolios in the competitive European market Cabot (Europe) Collections (in $M) Cabot collections of $141M in Q1 2024 up 6% compared to Q1 2023 139 137 141 133 135 We believe ongoing U.K. consumer weakness is marginally impacting one-time settlements
Slide 10: Record U.S. purchasing in Q1: capital toward highest return opportunities
Record U.S. purchasing in Q1: We continue to allocate capital toward our highest return opportunities Portfolio Purchases (in $M) 292 296 276 274 59 20% 63 61 231 84 200 51 237 80% 213 213 208 179 0 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 United States Europe Encore Capital Group, Inc. 10
Slide 11: ERC growth driven by attractive purchase price multiples and increased volume
ERC growth driven by both attractive purchase price multiples and increased purchase volume in the U.S. Encore Portfolio Purchasing and Resulting ERC Added (in $M) 708 700 684 581 589 600 511 500 400 292 296 300 276 274 231 200 100 0 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Portfolio Purchases ERC Ad
Slide 12: Collections in Q1 were up 10% compared to Q1 2023
Collections in Q1 were up 10% compared to Q1 2023 Collections by Geography (in $M) 511 500 462 477 465 458 141 133 139 135 137 369 329 336 330 320 0 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 United States Europe Other Note: Global, U.S. and Europe collections in Q1 2024 were 99%, 100% and 96% (98% in
Slide 13: Detailed Financial Discussion
Detailed Financial Discussion Encore Capital Group, Inc. 13
Slide 14: Q1 2024 Key Financial Measures and Impacts
Q1 2024 Key Financial Measures and Impacts Q1 2024 Q1 2024 Q1 2024 Key Financial Measures Q1 2024 Q1 2023 vs. Impacts from Changes in Recoveries Impact EPS Impact Q1 2023 Collections $511M $462M +10% Recoveries above forecast $1M $0.00 Revenues1 $328M $313M +5% Changes in expected future recoveries
Slide 15: Higher deployments has 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 Encore Quarterly Cash Generation1 (in $M) 350 300 250 200 150 100 50 0 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 2 Adjusted EBITDA Collections applied to principal balance 1) Cash ge
Slide 16: Leverage ratio remains within our target range
Leverage ratio remains within our target range Leverage 4.0x 3.0x 2.8x Target 2.9x 2.8x Leverage Ratio 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 18 18 18 18 19 19 19 19 20 20 20 20 21 21 21 21 22 22 22 22 23 2
Slide 17: Our funding structure is well diversified
Our funding structure is well diversified Debt Maturity Profile1 at March 31, 2024 (in $M) 1,400 1,194 1,200 1,000 322 800 730 316 554 230 600 478 100 175 368 400 556 500 200 378 379 368 20 - 2024 2025 2026 2027 2028 2029 Securitisation Facility 10% Convertible Notes 10% As of March 31, 2024, availa
Slide 18: Our Financial Priorities
Our Financial Priorities Balance Sheet Objectives Capital Allocation Priorities o Preserve financial flexibility o Portfolio purchases at attractive returns o Target leverage1 between 2.0x and 3.0x o Strategic M&A o Maintain a strong BB debt o Share Repurchases rating Deliver strong ROIC through the
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-diversifi
Slide 20: Summary
Summary Supply in U.S. market, where we are currently focused, continues to grow to record levels Deployed a record $237M in U.S. at strong returns Q1 2024 Maintaining discipline and constraining deployment in U.K./Europe Summary Q1 performance well-aligned with expectations as portfolio pur
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)) Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 GAAP net income (loss), as reported $ 60,439 $ 31,494 $ (73,118) $ 18,626 $ 26,305 $ 19,339 $ (270,762) $ 23,239 Interest expense 37,054 39,308 42,313 46,
Slide 24: Reconciliation of Adjusted EBITDA to GAAP Net Income
Reconciliation of Adjusted EBITDA to GAAP Net Income Twelve months ending (Unaudited, in $ thousands) Mar 31, 2023 Jun 30, 2023 Sep 30, 2023 Dec 31, 2023 Mar 31, 2024 GAAP net income (loss), as reported $ 37,441 $ 3,307 $ (8,848) $ (206,492) $ (201,879) Interest expense 165,510 178,439 189,689 201,8
Slide 25: Calculation of ROIC
Calculation of ROIC Reconciliation of Adjusted Income from Operations Last Twelve Months Ended (Unaudited, in $ thousands, except percentages) Mar 31, 2023 Jun 30, 2023 Sep 30, 2023 Dec 31, 2023 Mar 31, 2024 Numerator GAAP Income from operations $ 267,298 $ 236,422 $ 231,423 $ 16,535 $ 29,988 Adjust
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 March 31, 2024 (Unaudited, in $M, except per share amounts) As Reported Constant Currency Collections $511 $506 Revenues $328 $324 ERC1 $8,307 $8,253 Operating Expenses $245 $241 GAAP Net Income $23 $23 GAAP EPS $0.95 $0.94
Slide 29: Cash Efficiency Margin
Cash Efficiency Margin LTM Cash Efficiency Margin and LTM Cash Receipts (in $M) 1,946 1,946 1,992 1,922 1,927 o Cash Efficiency Margin 51.7% 51.2% 51.0% 51.2% 52.2% is a comprehensive measure of expense efficiency o We use LTM to match our long-term view of the business Q1 2023 Q2 2023 Q3 2023 Q4 20
Slide 30: Calculation of Cash Efficiency Margin
Calculation of Cash Efficiency Margin (Unaudited, in $ thousands, except percentages) LTM Q1 2023 LTM Q2 2023 LTM Q3 2023 LTM Q4 2023 LTM Q1 2024 Collections $ 1,854,479 $ 1,833,290 $ 1,840,373 $ 1,862,567 $ 1,911,098 Servicing revenue 91,360 88,581 86,482 83,136 80,930 Cash receipts (A) $ 1,945,839
Slide 31: Q1 2024 Cash Collections and Revenue Reconciliation
Q1 2024 Cash Collections and Revenue Reconciliation Q1 2024 Collections and Revenue Reconciliation (in $M) $510M Expected Cash Collections, equal to the sum of +1 2023 ERC plus expected collections from portfolios A 500 purchased in Q1 2024 400 195 $1M Recoveries Above Forecast, cash collections B 3
Slide 32: Components of Debt Purchasing Revenue in Q1 2024
Components of Debt Purchasing Revenue in Q1 2024 Q1 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 350 interest rate (EIR) that is establish