Encore Capital Group Inc

And thank you for standing by. Welcome to the Encore Capital Group's Q4 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during that session, you will need to press star 1 on your telephone. The vibe at today's conference is being recorded, and if you require any assistance during the call, please press star 0. I would like to hand over to your speaker today, Mr. Bruce Thomas, Vice President of Global Investor Relations. Mr. Thomas, the floor is yours.

Thank you, Operator. Good afternoon, and welcome to Encore Capital Group's fourth quarter 2021 earnings call. Joining me on the call today are Ashish Massey, 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 will be happy to take your questions. Unless otherwise noted, comparisons made on this conference call will be between the fourth quarter of 2021 and the fourth quarter of 2020, or between the full year 2021 and the full year 2020. 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 investor section of our website, where we will also post our prepared remarks following the conclusion of this call. Please note that at the conclusion of today's call, we will post our annual report to our website, which includes, among other items, a letter to shareholders and a copy of our Form 10K. With that, let me turn the call over to Ashish Massey, our President and Chief Executive Officer.

Thanks, Bruce, and good afternoon, everyone. Thank you for joining us. On today's call, I will start with a high-level recap of 2021, including a few key achievements. Then I'll review our strategy and financial priorities, as well as key measures that are important indicators of the strength of our business. Then John will review our financial results, after which I'll comment on our outlook for 2022 and beyond. Importantly, At the conclusion of today's call, we will also post to our website our annual report. It includes, among other items, my letter to shareholders. We will begin with a look back at our performance in 2021. In a year of challenges across the globe related to the ongoing COVID-19 pandemic, we continue to execute on our strategy and delivered exceptional performance in 2021. We maintained a disciplined, consistent approach to our business that drives shareholder value and positions the company for long-term success. Let me point to a number of highlights in 2021 that illustrate the success. To begin, our financial performance was driven primarily by our strong collections, particularly within our MCM business. Overall, we achieved new all-time highs for collections, returns, and earnings. On a global basis, Our portfolio purchases were $665 million in 2021, slightly exceeding on-course purchase total from a year ago when we deployed $660 million. Our weighted average purchase price multiple for the year remained attractive at 2.4 times. Our focus on returns, as well as continuous improvements in our collections operation, allowed us to mitigate portfolio pricing that was somewhat higher in 2021 than in 2020. Although banks continue to sell portfolios throughout 2021, markets in the US and the UK have been impacted by lower supply as a result of fewer charge-offs. However, we are beginning to see indications that credit normalization has begun. I'll expand upon this a bit later in our presentation. Throughout 2021, our business performed extremely well, delivering strong returns and cash flows. As a result, our balance sheet has continued to strengthen as we improved our leverage ratio to 1.9 times by the end of the year. We also refinanced the last of legacy Cabot bonds in 2021, further reducing our cost of capital. A strong cash generation in balance sheet combined with a low level of portfolio purchasing opportunities allowed us to return a meaningful amount of capital to shareholders in 2021. In total, including open market purchases throughout the year and our tender offer in the fourth quarter, we repurchased 23% of Encore's outstanding shares for $390 million. We play a critical role in the consumer credit ecosystem by assisting in the resolution of unpaid debts, which are an expected outcome of the lending business model. Our mission is to help consumers resolve their debts so they can regain the freedom to focus on what is important to them. And we do that by engaging in honest, empathetic, and respectful conversations. As part of our business model, we continue to purchase portfolios of non-performing loans at attractive returns, using funding with the lowest cost available to us. For each portfolio that we own, we strive to exceed our collection expectations. while both maintaining an efficient cost structure as well as ensuring the highest level of compliance and consumer focus. We achieve these objectives through our three-pillar strategy. This strategy enables us to consistently deliver outstanding financial performance, positions us well to capitalize on future opportunities, and is instrumental in building long-term shareholder value. The first pillar of our strategy, market focus, concentrates our efforts in the markets where we can achieve the highest risk adjusted returns. Consistent with this strategy, we sold our portfolios in Colombia and Peru during 2021. Changes in consumer behavior and government support of the economy led to lower credit card balances and below average charge-offs, which resulted in lower portfolio sales by banks in 2020 and 2021. However, it is now clear that credit card balances are rising again in the U.S. and the U.K., and we expect a continued normalization toward pre-COVID levels during 2022. We anticipate that this increased lending will translate into more charge-offs and lead to higher levels of portfolio sales in due course. Despite quarter-to-quarter variability that often characterizes market supply in our industry, our portfolio purchasing volumes over the past two years I've generally followed the trend of credit card balances within our primary markets. Even though our level of deployment was nearly the same in both 2020 and 2021, we believe the underlying volume trends clearly support our belief that the bottom of the supply environment is now behind us, and we expect our deployments for the year to grow in both our MCM and Cabot businesses. Importantly, While being mindful of lower market supply, we maintained our focus on returns, which we believe will enable us to deliver a stronger OIC through the credit cycle. Turning now to our largest and most valuable market in the U.S. In 2021, the ongoing effects of the pandemic caused a greater number of consumers to reassess the financial circumstances. Many consumers chose to improve the financial standing by reducing or eliminating the credit card debt and resolving the charged-off accounts. We were well-positioned to react to this change in consumer behavior and play our part in the credit ecosystem, providing hardship relief when appropriate and also providing solutions for a large number of consumers who were able to pay off their debts. Our MCM business in the U.S. delivered exceptional performance in 2021 as collections grew 7% to an all-time high of $1.6 billion. The continuous improvement in collections operations, the scale effect of higher collections, and the change in consumer behavior during the pandemic led to a lower cost to collect for MCM in 2021 compared to 2020. We successfully implemented the CFPB's new industry rules in November. We are pleased to see the completion of this multi-year process, which resolved uncertainty and finally leveled the playing field for participants in our industry. The new rules help modernize communications with consumers and allow us to engage with them using methods consumers prefer. For the year, MCTM deployed $409 million to purchase portfolios at an average purchase price multiple of 2.4 times in a market where supply was limited by the impacts of the pandemic. Even though we encountered somewhat higher pricing in the fourth quarter, we continue to deploy capital at the best returns in the industry. Our superior returns are the culmination of years of consistently applying a business strategy. Our disciplined purchasing and superior collections effectiveness enable us to purchase portfolios at strong purchase price multiples. Then over time, our continuous collection improvement efforts have enabled us to collect substantially more from both current and historical portfolio vintages, which raises our current multiple for each vintage even higher and helps drive our differentiated returns. Turning to a business in Europe, our collections recovered in 2021, growing 16% compared to the prior year and reaching a new all-time high after considerable COVID-related volatility in 2020. Our collections mix in 2021 led to a higher cost to collect for Cabot compared to the prior year. Deployments in 2021 of $256 million more than doubled compared to the prior year, as our markets in the UK and Europe began to recover from the impacts of the pandemic. Portfolio pricing in 2021 was somewhat higher within a European footprint, while purchasing activity has also begun to pick up more recently in the region. All the while, we maintain returns-focused discipline in purchasing portfolios. The second pillar of our strategy focuses on enhancing our competitive advantages. Our competitive platform enables us to consistently generate significant cash flow. Our cash generation in 2021 increased 14% compared to last year, reflecting the steady improvement in our business, the efficiency of our operations, and the resilience of our portfolios. Our growth in cash generation has contributed to our reduced borrowings and the deleveraging of our balance sheet. A strong cash generation also provides us with additional flexibility when we consider our capital allocation priorities, including the return of capital to shareholders through steady open market repurchases and a tender offer in the fourth quarter of 2021. Our competitive advantages also allow us to deliver differentiated returns In addition to cash generation, another important measure of our business is our return on invested capital, which takes into account both the performance of our collection operation as well as our ability to price risk appropriately when investing our capital. Accordingly, one of our fundamental financial priorities is that underlying business delivers strong long-term returns and that we maintain these strong returns through the credit cycle. Our ROIC performance in 2021 and our performance over time are solid indicators of how we execute in comparison to our peers. In simple terms, we deliver the highest return per invested dollar in the industry. The third pillar of our strategy makes the strength of our balance sheet a constant priority. Our strong operating performance and focused capital deployment have driven higher levels of cash flow and contributed to a lower level of debt. which in turn have reduced our leverage substantially over time. By the end of 2021, we had reduced our leverage ratio to 1.9 times, down from 2.4 times a year ago, and near the lowest in the industry even after the repurchase of $390 million of our shares during the year. As a reminder, our financial priorities include objectives for our balance sheet, as well as a clear capital allocation framework, all underpinned by a long-term focus on delivering strong returns through the credit cycle. We have made tremendous progress in developing a strong and financially flexible balance sheet. The previously mentioned leverage of 1.9 times at year-end is now just below our target range of 2 to 3 times, and we have maintained strong BB debt ratings. A consistent capital allocation framework is critical to success in our business, and our priorities are clear. Our business is fueled by our ability to purchase portfolios and attractive returns, and we have demonstrated our discipline in this area by delivering the best returns in our industry. In keeping with our capital allocation priorities, we began repurchasing OnCore shares in 2021 to return capital to shareholders. A strong cash generation and balance sheet, combined with a lower level of portfolio purchasing opportunities, allowed us to return a meaningful amount of capital to shareholders in 2021, culminating in a highly successful tender offer in the fourth quarter. As a result of our actions during the year, we repurchased approximately 23% of OnCore's outstanding shares for $390 million. These share repurchases were consistent with our capital allocation priorities and fully aligned with the balance sheet objectives to preserve financial flexibility and maintain prudent average. Even after repurchasing more than 7 million on-course shares in 2021, the majority of our multi-year share repurchase authorization, which we expanded last May, remained available at the end of the year. I'd now like to hand over the call to John for a more detailed look at our financial results.