Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q4 2016 Earnings Presentation
30 slides from Encore Capital's earnings presentation, Feb 23, 2017
Slide 1: Encore Capital Group, Inc. Q4 2016 Earnings Call
Encore Capital Group, Inc. Q4 2016 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 simil
Slide 3: Encore Update
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Slide 4: U.S. Market Continues to Demonstrate Pricing Discipline
4 U.S. MARKET CONTINUES TO DEMONSTRATE PRICING DISCIPLINE Pricing remains meaningfully improved in relation to a year ago Supply in the U.S. grew more than 15% in 2016 – on track for continued growth in 2017 Issuers are seeing their loss rates rise Some issuers are reducing their own in-hous
Slide 5: U.S. Debt Market Showing Higher Returns, But With Front-Loaded Expenses
5 U.S. DEBT MARKET SHOWING HIGHER RETURNS, BUT WITH FRONT-LOADED EXPENSES Incremental purchasing in late 2016 at high IRR’s – including investments in lower balance portfolios – resulted in higher account volumes Expenses in legal collections and Account Manager hiring precede liquidations Fro
Slide 6: We Have Begun Exploring an Initial Public Offering for Cabot Credit Management
6 WE HAVE BEGUN EXPLORING AN INITIAL PUBLIC OFFERING FOR CABOT CREDIT MANAGEMENT Encore acquired ~43% economic interest in Cabot Credit Management from J.C. Flowers in 2013 At that time, Cabot was principally active in only one country and one type of asset Since then, we have grown Cabot’s ER
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 Elevated pricing in the U.K. continues. Like in the U.S., consumer- centric programs have been initiated in the U.K. to drive continued strong returns We continue to focus on adjacent markets, including S
Slide 8: Encore Is Well Positioned to Adapt to the Regulatory Environment
8 ENCORE IS WELL POSITIONED TO ADAPT TO THE REGULATORY ENVIRONMENT UNDER ANY FORESEEABLE REGULATORY AGENDA Encore is well-positioned regardless of how the new administration may influence existing regulatory emphasis and industry regulation Encore’s goals are well-aligned with the goals of any r
Slide 9: Detailed Financial Discussion
9 Detailed Financial Discussion
Slide 10: Encore's Fourth Quarter 2016 GAAP EPS Was $0.85
10 ENCORE’S FOURTH QUARTER 2016 GAAP EPS WAS $0.85 $0.72 Economic EPS2 GAAP EPS1 $0.85 GAAP Net Income1 $22.0 million Adjusted Income2 $18.7 million Estimated Remaining Collections of $5.8 billion 1) From continuing operations attributable to Encore 2) Please refer to Appendix for reconciliation of
Slide 11: Encore's Full-Year 2016 GAAP EPS Was $3.05
11 ENCORE’S FULL-YEAR 2016 GAAP EPS WAS $3.05 $3.48 Economic EPS2 GAAP EPS1 $3.05 GAAP Net Income1 $78.9 million Adjusted Income2 $90.1 million Estimated Remaining Collections of $5.8 billion Collections $1.69 billion 1) From continuing operations attributable to Encore 2) Please refer to Appendix f
Slide 12: 2016 Deployments Reflect Better Market Conditions in the U.S.
United States $148 Europe $42 Other $20 United States $562 Europe $265 Other $80 12 2016 DEPLOYMENTS REFLECT BETTER MARKET CONDITIONS IN THE U.S. Q4-2016 Deployments 2016 Deployments $M Total $907 Total $210
Slide 13: Q4 Collections in the U.S. Reflect Delays in Legal Collections
13 Q4 COLLECTIONS IN THE U.S. REFLECT DELAYS IN LEGAL COLLECTIONS 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 5 2 0 1 6 Q1 Q2 Q3 Q4 Collection Sites Legal Collections Collection Agencies $M 0 100 200 300 400 500 2 0 1 5 2 0 1 6 2 0 1 5 2 0 1 6
Slide 14: International Collections Comprised 36% of Worldwide Total in 2016
14 ENCORE’S INTERNATIONAL COLLECTIONS COMPRISED 36% OF OUR WORLDWIDE TOTAL IN 2016 Collections by Geography 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2012 2013 2014 2015 2016 United States Europe Other 948 1,280 1,607 $M 1,701 1,686
Slide 15: Fourth Quarter Revenue Reflects Higher Multiple Portfolios Rolling Off in the U.S.
FOURTH QUARTER REVENUE REFLECTS HIGHER MULTIPLE PORTFOLIOS ROLLING OFF IN THE U.S. Revenue by Geography 15 -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 5 2 0 1 6 Q1 Q2 Q3 Q4 United States Europe Other $M 289 283 279 291 278 289 179 271
Slide 16: 2016 Revenue Decline Mostly Driven by European Portfolio Allowance and Currency
2016 REVENUE DECLINE MOSTLY DRIVEN BY THE EUROPEAN PORTFOLIO ALLOWANCE IN THE THIRD QUARTER & CURRENCY Revenue by Geography 16 $M 0 200 400 600 800 1,000 1,200 2012 2013 2014 2015 2016 United States Europe Other $M 545 756 1,043 1,130 1,029
Slide 17: Estimated Remaining Collections Grew $129 Million in 2016
17 ESTIMATED REMAINING COLLECTIONS GREW $129 MILLION IN 2016 Total Estimated Remaining Collections 0 1,000 2,000 3,000 4,000 5,000 6,000 2012 2013 2014 2015 2016 United States Europe Other 1,967 3,990 5,203 $M 5,711 5,840
Slide 18: GAAP EPS of $0.85 and Economic EPS of $0.72 in Q4 2016
ENCORE DELIVERED GAAP EPS OF $0.85 AND ECONOMIC EPS OF $0.72 IN THE FOURTH QUARTER OF 2016 18 * Please refer to Appendix for reconciliation of Adjusted EPS / Economic EPS measurements to GAAP $0.85 $0.02 ($0.31) ($0.15) ($0.10) $0.72 $0.72 $0.12 $0.29 Net income per diluted share from continuing ope
Slide 19: GAAP EPS of $3.05 and Economic EPS of $3.48 in 2016
ENCORE DELIVERED GAAP EPS OF $3.05 AND ECONOMIC EPS OF $3.48 IN 2016 19 * Please refer to Appendix for reconciliation of Adjusted EPS / Economic EPS measurements to GAAP $3.05 $0.24 $0.10 ($0.31) ($0.49) ($0.25) $3.48 $3.48 $0.46 $0.68 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.0
Slide 20: Leverage Ratio Impacted by Consolidation of Cabot's Debt
20 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 12/31/16 Without Cabot at 12/31/16 Total Deb
Slide 21: Summary
SUMMARY Cabot IPO • We believe Cabot’s equity value has grown through operational improvement, market consolidation and geographic expansion • Encore and J.C. Flowers have begun exploring an initial public offering of Cabot International Markets • Opportunistically purchasing in international market
Slide 22: Q&A
= encore i “CAPITAL GROUP — Q&A
Slide 23: Appendix
= encore “CAPITAL GROUP —_ Appendix
Slide 24: Non-GAAP Financial Measures
24 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 25: Reconciliation of Adjusted Income and Economic / Adjusted EPS (Q4)
25 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 December 31, 2016 2015 $ Per Diluted Share – Accounting Per Diluted Share – Economic $ Pe
Slide 26: Reconciliation of Adjusted Income and Economic / Adjusted EPS (Full Year)
26 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), Twelve Months Ended December 31, 2016 2015 $ Per Diluted Share – Accounting Per Diluted Share – Economic $ P
Slide 27: Reconciliation of Adjusted EBITDA to GAAP Net Income
Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, In $ Thousands) Twelve Months Ended 12/31/16 12/31/15 12/31/14 GAAP net income, as reported $ 16,817 $ 47,384 $ 98,278 Adjustments: Loss (income) from discontinued operations, net of tax 2,353 23,387 (5,205) Interest expense 198,367 18
Slide 28: 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 3/31/15 6/30/15 9/30/15 12/31/15 3/31/16 6/30/16 9/30/16 12/31/16 GAAP total operating expenses, as reported $ 194,895 $ 198,362 $ 248
Slide 29: 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 12/31/16 As Reported Constant Currency Revenue $ 271 $ 289 Operating expenses $ 184 $ 193 Net income* $ 22 $ 23 Adjusted net income* $ 19 $ 19 GAAP EPS* $ 0.85 $ 0.88 Econo
Slide 30: Fourth Quarter Cost-to-Collect Reflects Return to Normalcy After Q3 Adjustment in Europe
FOURTH QUARTER COST-TO-COLLECT REFLECTS A RETURN TO NORMALCY AFTER THIRD QUARTER ADJUSTMENT IN EUROPE 30 Overall Cost-to-Collect1 38.8% 37.7% 37.6% 36.9% 39.2% 41.1% 41.5% 38.4% 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 5 2 0 1 6 Q1 Q2 Q3 Q4 1. Cost-