Encore Capital Group Inc

Ladies and gentlemen, thank you for standing by and welcome to the Encore Capital Group's Q1 2020 Earnings Conference Call. At this time, our participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Bruce Thomas, Vice President of Investor Relations for Encore. Sir, you may begin.

Thank you, Operator. Good afternoon and welcome to Encore Capital Group's first quarter 2020 earnings call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer, Jonathan Clark, Executive Vice President and Chief Financial Officer, Ryan Bell, President of Midland Credit Management based in San Diego, and Craig Buick, CEO of Cabot Credit Management based in London. Ashish and John will make prepared remarks today and then we'll be happy to take your questions. We ask for your patience as consistent with social distancing best practices, each of us from the company will be speaking from a different location. We'll do our best to mitigate any impact this may have on the execution of the call. Unless otherwise noted, comparisons made on the conference call will be between the first quarter of 2020 and the first quarter of 2019. In addition, today's discussion will include forward-looking statements subject to risks and uncertainties. Actual results could differ materially from these forward-looking statements. Please refer to our SEC filings for a detailed discussion of potential risks and uncertainties. During this call, we will be using rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our earnings presentation, which was filed on Form 8K earlier today. As a reminder, this conference call will also be made available for replay on the Investors section of our website, where we will also post our prepared remarks following the conclusion of this call. With that, let me turn the call over to Ashish Masih, our President and Chief Executive Officer.

Thanks Bruce, and good afternoon everyone. Thank you for joining our earnings call. We are living in an unprecedented time due to the COVID-19 pandemic. It is impacting the health of our loved ones, the businesses we rely upon, the state of the global economy, and the way we live our daily lives. For those who are on the call, I hope that you and your families are safe, healthy, and finding ways to stay connected under the current circumstances. Before we begin, I want to recognize those impacted directly by the coronavirus and their families and friends, as well as the selfless heroes, the healthcare workers, first responders, and law enforcement officers who are tirelessly working with immense courage to help us all through this crisis. I would also like to thank our 7,000 plus employees around the world who have stepped up to the challenges of these unprecedented times. At Encore, We have been helping people recover from financial difficulty and turn toward a path of economic empowerment for years. It remains at the core of what we do and is even more relevant in current times. I'd now like to take a moment to provide an update on the impact of COVID-19 pandemic on our people, our business, and our environment. First, the health and well-being of our people is our most important responsibility. Early on, we activated a business continuity plan designed to protect our people and our business. We created a cross-functional global task force that continues to manage our response to the evolving situation. Through a combination of social distancing and working from home, we have remained operational across all our jurisdictions. And I'm proud to say that our people adapted quickly to their changing work environments. In times of crisis, it is prudent to maintain a solid footing and ample financial resources. The improvements we have made in strengthening our balance sheet over the past two years have provided us with a solid liquidity position. This strong position increases our flexibility and will also enable us to capitalize on purchasing opportunities as we navigate our way through the coming months. As a leading player in the credit management services industry, Oncore continues to treat our consumers with empathy, dignity, and respect during this difficult time. Many of the hardships brought about by COVID-19 and the measures implemented to contain the spread of the virus are similar in nature to the hardships encountered by our consumers on a day-to-day basis. Our consumer-centric collections approach, which is a core competency of ours, is designed specifically to work with consumers facing such hardships. At the same time, there are a number of factors impacting our collections that are outside of our control, including restrictions within certain code systems and the various shutdowns impacting the broader business environment. We operate in a highly regulated industry, and across the globe, governments and regulators are adopting changes in order to provide relief to COVID-impacted consumers. Adapting to changes such as these is a strength of ours. made possible by the expertise of our team as well as through prudent investment in systems and compliance over the past several years. Finally, we have solid relationships with the banks and credit card issuers from whom we purchase portfolios and to whom we provide credit management services. It is our aim to be strong partners for them and to be able to respond quickly as their needs evolve through these uncertain times. Turning now to Q1, today we announced financial results for the first quarter of 2020, during which we delivered another period of strong operating performance. Additionally, it should be noted that the impacts of COVID-19 outbreak did not occur until the quarter was nearly complete. While we delivered record collections of $527 million and record ERC of $8.5 billion, This strong performance was overshadowed by changes we made to our collections forecast caused by COVID-19. These forecast changes resulted in a non-cash charge of $109 million in the first quarter. As a result, we reported a first quarter gap net loss of $10 million, or 33 cents per share, with the non-cash charge reducing our earnings by $87 million after tax, or Without the impact of revising our collections forecast in response to COVID-19, we would have established a new record level of quarterly earnings in the first quarter by a wide margin. The adjusted loss in Q1 was $6 million, or $0.19 per share. The changes to our collections forecast had a significant impact on our financial results for Q1, as the large non-cash charge led to a loss in the first quarter. Importantly, these forecast changes are very much driven by anticipated delays in collections and not by an expectation of permanently reduced collections. The COVID-19 pandemic has affected each of the world's economies differently. Likewise, Each of our businesses has also experienced different levels of impact. We are seeing that our business in continental Europe has been impacted more than our business in the UK. And our business in the US has been impacted even less. Our forecast revisions in response to COVID-19 were based on delays in a portion of Q2, Q3, and Q4 2020 collections.