Encore Capital Group Announces Fourth Quarter and Full-Year 2022 Financial Results

February 22, 2023 at 4:05 PM EST
  • GAAP net income of $195 million in 2022
  • GAAP EPS of $7.46 in 2022
  • Portfolio purchases up 20% to $801 million in 2022
  • U.S. market for portfolio supply now growing

SAN DIEGO, Feb. 22, 2023 (GLOBE NEWSWIRE) -- Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2022.

“2022 marked another year of strong financial and operational performance for Encore as we delivered earnings per share that were second only to our extraordinary result from a year ago,” said Ashish Masih, Encore’s President and Chief Executive Officer. “The exceptional collections environment of 2021 in the U.S. gave way to more typical consumer behavior as the year progressed, which had the dual effect of reducing collections and increasing the supply of charged off receivables in the market.”

“After roughly two and a half years of reduced market supply, increased lending by banks and rising delinquencies have led to the beginning of a transition in the U.S. credit cycle in which opportunities to deploy capital at strong returns are also steadily rising. As a result, our largest business, MCM, increased U.S. portfolio purchasing in 2022 by 36%, which helped increase Encore’s global portfolio purchasing by 20% for the year.”

“In Europe, we have maintained our purchasing discipline in the face of portfolio pricing that we believe does not yet reflect recent higher funding costs. As a result, and because we are seeing double-digit inflation in parts of Europe, we are taking actions to control the cost base in our Cabot business. Consistent with our capital allocation priorities we will continue to focus our investments in markets with the highest risk adjusted returns.”

“In the fourth quarter, a number of accounting items negatively impacted our results including small percentage reductions to our ERC forecast and certain one-time tax items. Despite these impacts, we delivered strong results for the full year.”

“Looking ahead, our priorities in 2023 remain consistent with the fundamental objectives that have driven our financial performance and created shareholder value over the past several years. We remain anchored by our three pillar strategy and focused on our balance sheet objectives and capital allocation priorities. Against a backdrop of growing market supply in the U.S., we expect MCM’s portfolio purchases in Q1 2023 to be at least $200 million dollars at attractive returns, more than double Q1 2022 purchases. The purchasing pipeline for 2023 appears equally robust. Encore is well positioned to capitalize on these opportunities that are emerging as portfolio supply rises,” continued Masih.

Available capacity under Encore’s global senior facility was $478 million at the end of 2022. In addition, Encore ended the year with $126 million of non-client cash on the balance sheet.

Financial Highlights for the Full Year of 2022:

  Year Ended December 31,
(in thousands, except percentages and earnings per share)   2022       2021     Change
Collections $ 1,911,537     $ 2,307,359     (17 )%
Revenues $ 1,398,347     $ 1,614,499     (13 )%
Portfolio purchases(1) $ 800,507     $ 664,529     20 %
Estimated Remaining Collections (ERC) $ 7,555,003     $ 7,749,954     (3 )%
Operating expenses $ 936,173     $ 981,227     (5 )%
Effective tax rate   37.4 %     19.5 %   +1790bps  
GAAP net income attributable to Encore $ 194,564     $ 350,782     (45 )%
GAAP earnings per share $ 7.46     $ 11.26     (34 )%
                     

__________________
(1) Includes U.S. purchases of $556.0 million and $408.7 million, and Europe purchases of $244.5 million and $255.8 million in 2022 and 2021, respectively.

Financial Highlights for the Fourth Quarter of 2022:

  Three Months Ended December 31,
(in thousands, except percentages and earnings per share)   2022       2021     Change
Collections $ 436,156     $ 521,781     (16 )%
Revenues $ 233,996     $ 357,303     (35 )%
Portfolio purchases(1) $ 225,343     $ 183,435     23 %
Operating expenses $ 236,301     $ 233,279     1 %
Effective tax rate   (59.3 )%     10.6 %   N/A  
GAAP net (loss) income $ (73,118 )   $ 76,083     (196 )%
GAAP (loss) income per share $ (3.11 )   $ 2.53     (223 )%
                     

__________________
(1) Includes U.S. purchases of $168.9 million and $124.5 million, and Europe purchases of $56.4 million and $58.9 million in Q4 2022 and Q4 2021, respectively.

Conference Call and Webcast

The Company will host a conference call and slide presentation today, February 22, 2023, at 2:00 p.m. Pacific time / 5:00 p.m. Eastern time to discuss fourth quarter and full year results.

Members of the public are invited to access the live webcast via the Internet by logging in on the Investor Relations page of Encore's website at www.encorecapital.com. To access the live conference call by telephone, please pre-register using this link. Registrants will receive confirmation with dial-in details.

For those who cannot listen to the live broadcast, a replay of the webcast will be available on the Company's website shortly after the call concludes.

Non-GAAP Financial Measures

This news release 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 EBITDA because management utilizes this information in the evaluation of its operations and believes that this measure is a useful indicator of the Company’s ability to generate cash collections in excess of operating expenses through the liquidation of its receivable portfolios. Adjusted EBITDA has not been prepared in accordance with GAAP and should not be considered an alternative to, or more meaningful than, net income as an indicator of the Company’s operating performance. Further, this non-GAAP financial measure, as presented by the Company, may not be comparable to similarly titled measures reported by other companies. The Company has attached to this news release a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

About Encore Capital Group, Inc.

Encore Capital Group is an international specialty finance company that provides debt recovery solutions and other related services for consumers across a broad range of financial assets. Through its subsidiaries around the globe, Encore purchases portfolios of consumer receivables from major banks, credit unions, and utility providers. 

Encore partners with individuals as they repay their debt obligations, helping them on the road to financial recovery and ultimately improving their economic well-being. Encore is the first and only company of its kind to operate with a Consumer Bill of Rights that provides industry-leading commitments to consumers. Headquartered in San Diego, Encore is a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock of the Russell 2000, the S&P Small Cap 600 and the Wilshire 4500. More information about the company can be found at http://www.encorecapital.com.

Forward Looking Statements

The statements in this press release 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 similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). These statements may include, but are not limited to, statements regarding our future operating results, performance, business plans or prospects as well as statements regarding future supply, consumer behavior, or macroeconomic environment. For all “forward-looking statements,” the Company claims the protection of the safe harbor for forward-looking statements contained in the Reform Act. Such forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company and its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors are discussed in the reports filed by the Company with the Securities and Exchange Commission, including the most recent reports on Form 10-K, as it may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements.

Contact:
Bruce Thomas
Encore Capital Group, Inc.
Vice President, Global Investor Relations
(858) 309-6442
bruce.thomas@encorecapital.com

SOURCE: Encore Capital Group, Inc.

FINANCIAL TABLES FOLLOW

ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)

  December 31,
2022		   December 31,
2021
Assets      
Cash and cash equivalents $ 143,912     $ 189,645  
Investment in receivable portfolios, net   3,088,261       3,065,553  
Property and equipment, net   113,900       119,857  
Other assets   341,073       335,275  
Goodwill   821,214       897,795  
Total assets $ 4,508,360     $ 4,608,125  
Liabilities and Equity      
Liabilities:      
Accounts payable and accrued liabilities $ 198,217     $ 229,586  
Borrowings   2,898,821       2,997,331  
Other liabilities   231,695       195,947  
Total liabilities   3,328,733       3,422,864  
Commitments and contingencies      
Equity:      
Convertible preferred stock, $0.01 par value, 5,000 shares authorized, no shares issued and outstanding   —       —  
Common stock, $0.01 par value, 75,000 shares authorized, 23,323 shares and 24,541 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively   233       245  
Additional paid-in capital   —       —  
Accumulated earnings   1,278,210       1,238,564  
Accumulated other comprehensive loss   (98,816 )     (53,548 )
Total stockholders’ equity   1,179,627       1,185,261  
Total liabilities and stockholders’ equity $ 4,508,360     $ 4,608,125  
               

The following table presents certain assets and liabilities of consolidated variable interest entities (“VIEs”) included in the consolidated statements of financial condition above. Most assets in the table below include those assets that can only be used to settle obligations of consolidated VIEs. The liabilities exclude amounts where creditors or beneficial interest holders have recourse to the general credit of the Company.

  December 31,
2022		   December 31,
2021
Assets      
Cash and cash equivalents $ 1,344     $ 1,927  
Investment in receivable portfolios, net   431,350       498,507  
Other assets   3,627       3,452  
Liabilities      
Accounts payable and accrued liabilities   150       105  
Borrowings   423,522       473,443  
Other liabilities   105       10  
               

ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)

  (Unaudited)
Three Months Ended December 31,		   Year Ended December 31,
    2022       2021       2022       2021  
Revenues              
Revenue from receivable portfolios $ 294,755     $ 305,337     $ 1,202,361     $ 1,287,730  
Changes in recoveries   (86,148 )     22,508       93,145       199,136  
Total debt purchasing revenue   208,607       327,845       1,295,506       1,486,866  
Servicing revenue   22,996       26,877       94,922       120,778  
Other revenues   2,393       2,581       7,919       6,855  
Total revenues   233,996       357,303       1,398,347       1,614,499  
Operating expenses              
Salaries and employee benefits   90,058       96,286       375,135       385,178  
Cost of legal collections   54,188       56,068       217,944       254,280  
General and administrative expenses   40,023       34,905       145,798       137,695  
Other operating expenses   28,516       25,043       111,234       106,938  
Collection agency commissions   8,156       8,592       35,568       47,057  
Depreciation and amortization   15,360       12,385       50,494       50,079  
Total operating expenses   236,301       233,279       936,173       981,227  
(Loss) income from operations   (2,305 )     124,024       462,174       633,272  
Other expense              
Interest expense   (42,313 )     (38,088 )     (153,308 )     (169,647 )
Loss on extinguishment of debt   —       —       —       (9,300 )
Other (expense) income   (1,269 )     (791 )     2,123       (17,784 )
Total other expense   (43,582 )     (38,879 )     (151,185 )     (196,731 )
(Loss) income before income taxes   (45,887 )     85,145       310,989       436,541  
Provision for income taxes   (27,231 )     (9,062 )     (116,425 )     (85,340 )
Net (loss) income   (73,118 )     76,083       194,564       351,201  
Net income attributable to noncontrolling interest   —       —       —       (419 )
Net (loss) income attributable to Encore Capital Group, Inc. stockholders $ (73,118 )   $ 76,083     $ 194,564     $ 350,782  
               
(Loss) income per share attributable to Encore Capital Group, Inc.:              
Basic $ (3.11 )   $ 2.72     $ 8.06     $ 11.64  
Diluted $ (3.11 )   $ 2.53     $ 7.46     $ 11.26  
               
Weighted average shares outstanding:              
Basic   23,544       27,950       24,142       30,129  
Diluted   23,544       30,040       26,092       31,153  
                               

ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(In Thousands)

  Year Ended December 31,
    2022       2021       2020  
Operating activities:          
Net income $ 194,564     $ 351,201     $ 212,524  
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   50,494       50,079       42,780  
Expense related to financing   —       9,300       51,117  
Other non-cash interest expense, net   15,875       17,785       23,639  
Stock-based compensation expense   15,402       18,330       16,560  
Deferred income taxes   46,410       35,371       8,549  
Changes in recoveries   (93,145 )     (199,136 )     (7,246 )
Other, net   18,798       17,130       16,260  
Changes in operating assets and liabilities          
Other assets   (6,722 )     38,941       (33,663 )
Accounts payable, accrued liabilities and other liabilities   (30,995 )     (35,948 )     (17,656 )
Net cash provided by operating activities   210,681       303,053       312,864  
Investing activities:          
Purchases of receivable portfolios, net of put-backs   (790,569 )     (657,280 )     (644,048 )
Collections applied to investment in receivable portfolios, net   709,176       1,019,629       737,131  
Purchases of assets held for sale   (39,340 )     (17,090 )     (1,502 )
Purchases of property and equipment   (37,224 )     (33,372 )     (34,600 )
Other, net   27,722       28,009       25,845  
Net cash (used in) provided by investing activities   (130,235 )     339,896       82,826  
Financing activities:          
Payment of loan and debt refinancing costs   (1,659 )     (11,963 )     (82,455 )
Proceeds from credit facilities   779,513       821,931       1,820,634  
Repayment of credit facilities   (515,703 )     (896,418 )     (2,290,822 )
Proceeds from senior secured notes   —       353,747       1,313,385  
Repayment of senior secured notes   (39,080 )     (359,175 )     (1,033,765 )
Repayment of convertible senior notes   (221,153 )     (161,000 )     (89,355 )
Repurchase and retirement of common stock   (87,006 )     (390,606 )     —  
Other, net   (22,357 )     (12,208 )     (40,822 )
Net cash used in financing activities   (107,445 )     (655,692 )     (403,200 )
Net decrease in cash and cash equivalents   (26,999 )     (12,743 )     (7,510 )
Effect of exchange rate changes on cash and cash equivalents   (18,734 )     13,204       4,359  
Cash and cash equivalents, beginning of period   189,645       189,184       192,335  
Cash and cash equivalents, end of period $ 143,912     $ 189,645     $ 189,184  
           
Supplemental disclosures of cash flow information:          
Cash paid for interest $ 131,391     $ 132,400     $ 169,553  
Cash paid for income taxes, net of refunds   71,276       42,039       88,816  
Supplemental schedule of non-cash investing and financing activities:          
Investment in receivable portfolios transferred to real estate owned $ 1,903     $ 768     $ 2,214  
Property and equipment acquired through finance leases   3,273       2,664       3,276  
                       

ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Non-GAAP Metrics

Adjusted EBITDA

  Three Months Ended December 31,   Year Ended December 31,
(in thousands, unaudited)   2022       2021       2022       2021  
GAAP net (loss) income, as reported $ (73,118 )   $ 76,083     $ 194,564     $ 351,201  
Adjustments:              
Interest expense   42,313       38,088       153,308       169,647  
Loss on extinguishment of debt   —       —       —       9,300  
Interest income   —       (568 )     (1,774 )     (1,738 )
Provision for income taxes   27,231       9,062       116,425       85,340  
Depreciation and amortization   15,360       12,385       50,494       50,079  
Stock-based compensation expense   3,171       5,427       15,402       18,330  
Acquisition, integration and restructuring related expenses(1)   34       2,609       1,213       20,559  
Adjusted EBITDA $ 14,991     $ 143,086     $ 529,632     $ 702,718  
Collections applied to principal balance(2) $ 232,420     $ 201,322     $ 635,262     $ 843,087  
                               

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(1) Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore, adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(2) Amount represents (a) gross collections from receivable portfolios less (b) debt purchasing revenue, plus (c) proceeds applied to basis from sales of real estate owned (“REO”) assets and related activities. A reconciliation of “collections applied to investment in receivable portfolios, net” to “collections applied to principal balance” is available in the Form 10-K for the period ending December 31, 2022.


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Source: Encore Capital Group, Inc.