Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q1 2017 Earnings Presentation
25 slides from Encore Capital's earnings presentation, May 4, 2017
Slide 1: Encore Capital Group, Inc. Q1 2017 Earnings Call
Encore Capital Group, Inc. Q1 2017 EARNINGS CALL Exhibit 99.1
Slide 2: Cautionary Note About Forward-Looking Statements
2 CAUTIONARY NOTE ABOUT FORWARD- LOOKING STATEMENTS 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 simi
Slide 3: Encore Update
eee ENCORE UPDATE <—=- encore
Slide 4: U.S. Market Continues to Demonstrate Favorable Dynamics for Our Business
4 U.S. MARKET CONTINUES TO DEMONSTRATE FAVORABLE DYNAMICS FOR OUR BUSINESS Supply continues to improve Federal Reserve reports another quarter of continued growth in credit card debt in Q1, which now exceeds pre-recession levels Banks are forecasting increasing levels of loan losses Pricing
Slide 5: The C's Will Drive Success in Our Business
5 THE 5 C’S WILL DRIVE SUCCESS IN OUR BUSINESS As volume rises, those with available capacity will garner better pricing Capital Capacity Confidence Cost Commitment We now have nearly $300 million of deployable capital Substantial existing capacity as incremental build-out continues, also prepar
Slide 6: Spending and Staffing Objectives Introduced Last Quarter Are On Track
6 SPENDING AND STAFFING OBJECTIVES INTRODUCED LAST QUARTER ARE ON TRACK Incremental purchasing in late 2016 at high IRR’s – including investments in lower balance portfolios – resulted in higher account volumes As mentioned last quarter, Account Manager hiring, additional lettering, and incremen
Slide 7: Our International Businesses Provide Encore with Additional Opportunity to Deploy Capital
7 OUR INTERNATIONAL BUSINESSES PROVIDE ENCORE WITH ADDITIONAL OPPORTUNITY TO DEPLOY CAPITAL Cabot had a strong purchasing quarter in the U.K. Cabot’s liquidation initiatives continue to drive collections improvement Preparation for a potential Cabot IPO continues on track, advisors have been c
Slide 8: Compliance Investments Create a Competitive Advantage
8 COMPLIANCE INVESTMENTS CREATE A COMPETITIVE ADVANTAGE Investments in compliance and risk management over a multi-year period are generating significant value The legal collection delays from last year are behind us We expect delayed collections from 2016 will be mostly recouped in 2017 with
Slide 9: Detailed Financial Discussion
9 Detailed Financial Discussion
Slide 10: Encore's First Quarter 2017 GAAP EPS Was $0.85
10 ENCORE’S FIRST QUARTER 2017 GAAP EPS WAS $0.85 $0.95 Economic EPS2 GAAP EPS1 $0.85 GAAP Net Income1 $22.3 million Adjusted Income2 $24.8 million Estimated Remaining Collections of $5.8 billion 1) From continuing operations attributable to Encore 2) Please refer to Appendix for reconciliation of E
Slide 11: Q1 Deployments Reflect Our Disciplined Approach to Purchasing
11 Q1 DEPLOYMENTS REFLECT OUR DISCIPLINED APPROACH TO PURCHASING Q1-2017 Deployments $M United States $123 Europe $85 Other $11 Total $219
Slide 12: After Prior Delays in the U.S., Legal Collections Back to Normal Pace
12 AFTER PRIOR DELAYS IN THE U.S., LEGAL COLLECTIONS BACK TO NORMAL PACE BY THE END OF THE FIRST QUARTER Collections by Geography 0 100 200 300 400 500 2 0 1 5 2 0 1 6 2 0 1 5 2 0 1 6 2 0 1 5 2 0 1 6 2 0 1 6 2 0 1 7 Q2 Q3 Q4 Q1 Collection Sites Legal Collections Collection Agencies $M 0 100 200 300
Slide 13: Q1 Revenue in Europe Reflects Currency Effects and Q3 Allowance Charge
Q1 REVENUE IN EUROPE REFLECTS CURRENCY EFFECTS AND CONTINUED IMPACT OF Q3 ALLOWANCE CHARGE Revenue by Geography 13 -50 0 50 100 150 200 250 300 350 2 0 1 5 2 0 1 6 2 0 1 5 2 0 1 6 2 0 1 5 2 0 1 6 2 0 1 6 2 0 1 7 Q2 Q3 Q4 Q1 United States Europe Other $M 289 283 279 291 272 289 179 271
Slide 14: ERC at the End of Q1 Represents Our Highest Level to Date
14 ERC AT THE END OF Q1 REPRESENTS OUR HIGHEST LEVEL TO DATE Total Estimated Remaining Collections 0 1,000 2,000 3,000 4,000 5,000 6,000 March 2013 March 2014 March 2015 March 2016 March 2017 United States Europe Other 1,911 4,758 5,080 $M 5,665 5,849
Slide 15: Encore Delivered GAAP EPS of $0.85 and Economic EPS of $0.95
ENCORE DELIVERED GAAP EPS OF $0.85 AND ECONOMIC EPS OF $0.95 IN THE FIRST QUARTER OF 2017 15 * Please refer to Appendix for reconciliation of Adjusted EPS / Economic EPS measurements to GAAP $0.85 $0.02 ($0.06) ($0.02) $0.95 $0.95 $0.12 $0.04 Net income per diluted share from continuing operations a
Slide 16: Encore's Leverage Ratio Is Impacted by Consolidation of Cabot's Debt
16 ENCORE’S LEVERAGE RATIO IS SIGNIFICANTLY IMPACTED BY THE CONSOLIDATION OF CABOT’S DEBT ON OUR BALANCE SHEET Debt and Debt Ratios1 Although we fully consolidate Cabot’s debt on our balance sheet, their debt is non-recourse to Encore Encore With Cabot at 03/31/17 Without Cabot at 03/31/17 Total Deb
Slide 17: Summary
SUMMARY 17 Q1 was a solid quarter of financial and operational performance Supply continues to rise and prices continue to fall in the U.S. Improved pricing and better liquidations drove Q1 core purchase price multiple to 2.0x for first time since 2013 We’ve secured >$350 million in commitme
Slide 18: Encore Capital Group - Better Solutions. Better Life.
\= encore CAPITAL GROUP Better Solutions. Better Life.
Slide 19: Appendix
\= encore CAPITAL GROUP Better Solutions. Better Life. Appendix
Slide 20: Non-GAAP Financial Measures
20 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 EBI
Slide 21: Reconciliation of Adjusted Income and Economic / Adjusted EPS
21 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, 2017 2017 $ Per Diluted Share – Accounting Per Diluted Share – Economic $ Per D
Slide 22: Reconciliation of Adjusted EBITDA to GAAP Net Income
Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Three Months Ended 6/30/16 9/30/16 12/31/16 3/31/17 GAAP net income, as reported $ 30,833 $ (51,946) $ 11,323 $ 14,979 Adjustments: (Income) loss from discontinued operations, net of tax --- --- (829) 199 Interest expen
Slide 23: Reconciliation of Adjusted Operating Expenses to GAAP Operating Expenses
Reconciliation of Adjusted Operating Expenses to GAAP Operating Expenses (Unaudited, In $ Thousands) Three Months Ended RECONCILIATION OF ADJUSTED OPERATING EXPENSES 6/30/15 9/30/15 12/31/15 3/31/16 6/30/16 9/30/16 12/31/16 3/31/17 GAAP total operating expenses, as reported $ 198,362 $ 248,185 $ 206
Slide 24: Impact of Fluctuations in Foreign Currency Exchange Rates
(Unaudited, In Millions, except per share amounts) IMPACT OF FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES Three Months Ended 3/31/17 As Reported Constant Currency Revenue $ 272 $ 283 Operating expenses $ 196 $ 203 Net income* $ 22 $ 23 Adjusted net income* $ 25 $ 25 GAAP EPS* $ 0.85 $ 0.86 Econom
Slide 25: Cost-to-Collect Remains Well-Controlled
COST-TO-COLLECT REMAINS WELL-CONTROLLED 25 Overall Cost-to-Collect1 37.6% 36.9% 39.2% 41.1% 41.5% 38.4% 37.7% 37.8% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2 0 1 5 2 0 1 6 2 0 1 5 2 0 1 6 2 0 1 5 2 0 1 6 2 0 1 6 2 0 1 7 Q2 Q3 Q4 Q1 1. Cost-to-Collect = Adjusted operating expenses / collections. See ap