Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q3 2020 Earnings Presentation
28 slides from Encore Capital's earnings presentation, Nov 2, 2020
Slide 1: Encore Capital Group Q3 2020 Earnings Call
Exhibit 99.1 Encore Capital Group, Inc. Q3 2020 EARNINGS CALL
Slide 2: Cautionary Note About Forward-Looking Statements
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS The statements in this presentation that are not performance or achievements of the Company and historical facts, including, most importantly, those its subsidiaries to be materially different from any statements preceded by, or that include, the word
Slide 3: Third Quarter 2020 Key Financial Measures
THIRD QUARTER 2020 KEY FINANCIAL MEASURES Estimated Remaining Global Collections Global Revenues Collections (ERC) $540M $404M $8.5B up 8% up 13% up 15% Record Record GAAP EPS1 GAAP Net Income1 Economic EPS2 Adjusted Income2 $1.72 $55M $2.31 $74M up 40% up 41% up 41% up 42% TTM GAAP Return on Averag
Slide 4: Our Adjusted EBITDA Reflects Record Cash Generation
OUR ADJUSTED EBITDA REFLECTS RECORD CASH GENERATION Adjusted EBITDA + Collections applied to principal balance (Trailing 12-Months, in $M) $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 Adjusted EBI
Slide 5: Record MCM Collections of $391M in Q3
RECORD MCM COLLECTIONS OF $391M IN Q3 DRIVEN BY STRONG GROWTH IN CALL CENTER & DIGITAL COLLECTIONS CHANNEL MCM (U.S.) Business MCM Collections by Channel and CTC MCM collections grew 18% to a record $391M 40.7% 39.8% 36.9% Call Center & Digital collections up 32% $391M $318M $331M Deployed $14
Slide 6: Cabot's Focus on Cost Management Has Enabled Continued Strong Profitability
CABOT’S FOCUS ON COST MANAGEMENT HAS ENABLED CONTINUED STRONG PROFITABILITY Cabot (Europe) Business Cabot’s collections trends improving, down only 6% compared to Q3 2019 while call center & digital collections were broadly in line with last year Cabot’s cost management has enabled strong profit
Slide 7: Detailed Financial Discussion
Detailed Financial Discussion 7
Slide 8: Q3 Portfolio Purchases Reflect Better Supply in U.S. Than Europe
Q3 PORTFOLIO PURCHASES REFLECT BETTER SUPPLY IN THE U.S. THAN IN EUROPE AND OUR CONTINUED FOCUS ON RETURNS Q3 2020 Deployments Europe $29M United States $141M Total $170M 8
Slide 9: Record Collections of $540M Up 8% Versus Q3 Last Year
RECORD COLLECTIONS OF $540M WERE UP 8% COMPARED TO Q3 LAST YEAR Collections by Geographic Location 527 540 499 514 515 508 499 500 484 400 300 $M 200 100 0 2018 2019 2019 2020 2019 2020 2019 2020 Q4 Q1 Q2 Q3 United States Europe Other Year-to-date global collections1 through the first 3 quarters of
Slide 10: Q3 Revenues of $404M Up 13%
Q3 REVENUES OF $404M WERE UP 13% COMPARED TO THE SAME QUARTER A YEAR AGO Revenues by Geographic Location 450 426 404 400 349 348 347 347 356 350 289 300 250 $M 200 150 100 50 0 2018 2019 2019 2020 2019 2020 2019 2020 Q4 Q1 Q2 Q3 United States Europe Other 10
Slide 11: ERC of $8.5B Up 15% Versus Q3 Last Year
ERC OF $8.5B WAS UP 15% COMPARED TO Q3 LAST YEAR Total Estimated Remaining Collections1 8,460 8,000 7,287 7,374 6,000 $M 4,000 2,000 0 Q3 2018 Q3 2019 Q3 2020 United States Europe Other Geographies REO 1) Q3 2018 ERC of $7,221M and Q3 2019 ERC of $7,298 as reported did not include $66M and $77M, res
Slide 12: Encore Reported GAAP EPS of $1.72 and Economic EPS of $2.31
ENCORE REPORTED GAAP EPS OF $1.72 AND ECONOMIC EPS OF $2.31 IN THE THIRD QUARTER OF 2020 Three Months Ended September 30, 2020 $2.50 $0.10 $0.06 ($0.04) $2.31 $2.31 $0.47 $2.00 $1.72 $1.50 No shares deducted $1.00 in Q3 2020 $0.50 $0.00 GAAP net income per CFPB settlement fees Convertible and Amorti
Slide 13: Encore Combined Balance Sheets to Form New Global Funding Structure
IN SEPTEMBER, ENCORE COMBINED THE BALANCE SHEETS OF ITS BUSINESSES TO FORM A NEW GLOBAL FUNDING STRUCTURE New Global Funding Structure New multi-currency revolving credit facility to support MCM and Cabot • Total commitment of $1,050M Actions Issued new €350M 4.875% Senior Secured Notes due 2025
Slide 14: Strong Balance Sheet and New Funding Structure Provide Financial Flexibility
AFTER 2+ YEARS OF STEADY IMPROVEMENT, OUR STRONG BALANCE SHEET AND NEW FUNDING STRUCTURE PROVIDE FINANCIAL FLEXIBILITY Over the past 2+ years: ERC versus Leverage ► Debt/Equity ratio reduced 9,000 6.00 from 5.9x to 2.9x 8,000 5.00 ► Net Debt/(Adjusted EBITDA + 7,000 Collections applied to principal
Slide 15: Steady Focus on Our Three Strategic Priorities
OUR STEADY FOCUS ON OUR THREE STRATEGIC PRIORITIES HAS POSITIONED US WELL FOR THE FUTURE Market Focus ● Q3 was an outstanding operating period for Encore with record collections, ERC and cash generation Concentrating on the valuable U.S. and U.K. markets ● We continue to navigate the uncertainties c
Slide 16: Appendix
—_ encore CAPITAL GROUP Appendix 16
Slide 17: 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 18: Reconciliation of Adjusted Income and Economic EPS
RECONCILIATION OF ADJUSTED INCOME AND ECONOMIC EPS Reconciliation of Adjusted Income and Economic / Adjusted EPS to GAAP EPS (Unaudited, In Thousands, except per share amounts), Three Months Ended September 30, 2020 September 30, 2019 Per Diluted Share Per Diluted Share $ – Accounting & $ – Accounti
Slide 19: Reconciliation of Adjusted EBITDA
RECONCILIATION OF ADJUSTED EBITDA 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 $ 30,833 $ (5
Slide 20: 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 12/31/18 GAAP net income (loss), as reported $ 14,979 $ 19,076 $ 42,144 $ 2,779 $ 23,713 $
Slide 21: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 03/31/19 06/30/19 09/30/19 12/31/19 03/31/20 06/30/20 09/30/20 GAAP net income (loss), as reported $ 49,442 $ 36,822 $ 39,413 $ 43,232 $ (10,579) $ 130,78
Slide 22: Reconciliation of Adjusted EBITDA (continued)
RECONCILIATION OF ADJUSTED EBITDA (continued) Reconciliation of Adjusted EBITDA to GAAP Net Income 1) In the fourth quarter of 2016, we made a change to our presentation of adjusted EBITDA to adjust for interest income. In previous years we did not include interest income as an adjustment because it
Slide 23: 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 12/31/18 03/31/19 06/30/19 09/30/19 12/31/19 03/31/20 06/30/20 09/30/20 GAAP tot
Slide 24: Cost-to-Collect Includes 100% of Court Costs Beginning Q1 2020
BEGINNING IN Q1 2020, COST-TO-COLLECT INCLUDES 100% OF COURT COSTS, BRINGING ENCORE INTO ALIGNMENT WITH THE INDUSTRY Overall Cost-to-Collect1 45% 39.6% 40% 37.8% 36.4% 37.1% 36.6% 37.4% 34.9% 35% Q3 2019 Q3 2020 31.3% Location 30% CTC CTC 25% United States 39.8% 36.9% 20% Europe 29.0% 28.1% 15% Othe
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) Three Months Ended Constant As Reported 09/30/20 Currency Revenues $404 $398 Operating expenses $261 $258 Net income1 $55 $53 Adjusted net income1 $74 $72 GAAP EPS1 $1.72 $1.67 Economic EPS1
Slide 26: Encore's Leverage Ratios
ENCORE’S LEVERAGE RATIOS Leverage Ratios Encore Consolidated at 03/31/20 at 06/30/20 at 09/30/20 Debt / Equity 3.77x 3.23x 2.89x Net Debt / (TTM Adjusted EBITDA + TTM Collections applied to principal balance)1 2.58x 2.42x 2.41x Encore Consolidated at 03/31/19 at 06/30/19 at 09/30/19 at 12/31/19 Debt
Slide 27: Reconciliation of Net Debt
RECONCILIATION OF NET DEBT Reconciliation of Net Debt (Unaudited, in millions) Three Months Ended 03/31/20 06/30/20 09/30/20 GAAP Borrowings, as reported $ 3,404 $ 3,354 $3,252 Debt issuance costs and debt discounts 69 63 107 Cash & cash equivalents (188) (294) (170) Client cash1 19 21 20 Net Debt $
Slide 28: Debt Maturity Profile
DEBT MATURITY PROFILE Debt Maturity Profile at September 30, 2020 ($M) 1,084 963 874 100 469 173 410 663 585 200 189 452 10 2020 2021 2022 2023 2024 2025 Private Placement Notes Global Revolving Credit Facility 2021 Convertible Notes 2024 Floating Rate Notes 2022 Convertible Notes Cabot Securitisati