Encore Capital Group Inc

Good afternoon, ladies and gentlemen, and welcome to the Encore Capital Group's Q2 2020 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Bruce Thomas, VP of Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon and welcome to Encore Capital Group's second 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, and Craig Buick, CEO of Cabot Credit Management. Ashish and John will make prepared remarks today, and then we'll be happy to take your questions. Unless otherwise noted, comparisons made on this conference call will be between the second quarter of 2020 and the second 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 use 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. As the COVID-19 pandemic remains front and center in some countries, and begins to resolve itself and others. We hope that all of you listening to this call and your families are safe, healthy and finding ways to regain increasing levels of normalcy. I'm grateful that the steps we've taken as a company, which have placed the health and wellbeing of our people as our most important priority, have also allowed us to perform at or above the high level of productivity we exhibited before the pandemic. I'm proud of the Encore employees around the globe who have grown closer as a unified team in 2020, even while being physically more distant from each other. In these challenging times in which financial hardship has become more prevalent, we are reminded that for years, Encore has been helping people recover from financial difficulty and regain their personal economic freedom. It remains at the core of what we do. Despite the hardships caused by COVID-19, consumers are demonstrating resiliency through their efforts to resolve their debts. As a result, collections in our call center and digital channel have not been as negatively impacted by the coronavirus as we had originally modeled when we revised the collections forecast during the early stages of the pandemic a quarter ago. In fact, inbound call volume has been quite strong particularly for MCM. As a result of investing in our people and in technology over the past several years we were well prepared for high levels of call volume as well as higher demand from consumers who prefer to reach us through our digital platform. In addition, our team has done an outstanding job in adapting our collections operations to the varying conditions caused by COVID-19. While we outperformed our Q2 expected collections curves We also reduced expenses. In addition to our continued focus on expense management, during the quarter, we had lower legal channel expenses as we significantly reduced our efforts to collect through the legal channel in many jurisdictions. I'll talk more about the legal channel in a few moments. We delivered strong results for the second quarter of 2020. Global collections were $508 million and came in better than expected for both MCM and Cabot. Record global revenues of $426 million were up 23% compared to the second quarter a year ago. Our ERC of $8.4 billion was up 13% compared to Q2 last year. As a result of stronger than expected collections and reduced expenses in our legal channel, we delivered recorded quarterly GAAP net income of $130 million or $4.13 per share. This result was more than two and a half times as large as the previous record earnings in any quarter. We also established a new record in Q2 for non-GAAP adjusted income of $137 million or $4.34 per share. We continue to consistently generate significant cash as we collect on the portfolios we own. And as we continue to purchase portfolios at more attractive multiples, we enhance our ability to generate even higher levels of cash. In fact, in the second quarter, we again set a new record for adjusted EBITDA including collections applied to principal, which is the industry benchmark for cash generation. I would like to remind you that this metric is largely insulated from the implications of any accounting changes.