Encore Capital Group Announces Third Quarter 2022 Financial Results

November 2, 2022 at 4:05 PM EDT
  • GAAP net income of $31 million
  • GAAP EPS of $1.22
  • Global collections of $458 million
  • Portfolio purchases of $233 million

SAN DIEGO, Nov. 02, 2022 (GLOBE NEWSWIRE) --  Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company, today reported consolidated financial results for the third quarter ended September 30, 2022.

“Our performance in recent years and the disciplined execution of our strategy has put us in a position of strength to navigate the evolving macroeconomic environment that we and many companies face today,” said Ashish Masih, President and Chief Executive Officer. “This environment impacted Encore’s performance in the third quarter, which reflected an expected lower level of collections, resulting from lower global portfolio purchasing in recent quarters and normalizing U.S. consumer behavior, while our European results were affected by the weakening of the British pound and the Euro. At the same time, as anticipated, we are now entering the growth part of the portfolio supply cycle in the U.S., with lending steadily growing and charge-off rates beginning to rise above the pandemic lows. Consequently, MCM portfolio purchases in the U.S. in the third quarter were up 73% compared to Q3 last year and Encore’s global purchases in the quarter were the largest since Q4 2019.”

“In Europe, Cabot’s third quarter results indicated a decline in collections and portfolio purchases as reported, but when adjusted for the impact of the weakening British pound and Euro, both collections and purchases were flat when compared to the year ago quarter.”

“I am truly excited about Encore’s strong position as we have the required operational capacity and ample liquidity to capitalize on the growing portfolio purchasing opportunities in the marketplace. We're also as committed as ever to the critical role we play in the credit ecosystem and to help consumers regain their financial freedom," said Masih.

Financial Highlights for the Third Quarter of 2022:

  Three Months Ended September 30,
(in thousands, except percentages and earnings per share)   2022       2021     Change
Collections $ 458,256     $ 566,690     (19)%
Revenues $ 307,752     $ 412,624     (25)%
Portfolio purchases(1) $ 232,652     $ 168,188     38%
Estimated Remaining Collections (ERC) $ 7,312,336     $ 7,879,353     (7)%
Operating expenses $ 227,235     $ 245,977     (8)%
GAAP net income attributable to Encore $ 31,494     $ 83,566     (62)%
GAAP earnings per share $ 1.22     $ 2.66     (54)%
LTM Pre-tax ROIC(2)   15.1 %     15.2 %   -10bps
Leverage Ratio(3)   2.1 x     1.8 x   +0.3x

______________________

(1)   Includes U.S. purchases of $176.6 million and $102.3 million, and Europe purchases of $56.1 million and $65.8 million in Q3 2022 and Q3 2021, respectively.

(2)   This is a non-GAAP metric. See Supplemental Financial Information for a definition and calculation of LTM Pre-Tax ROIC (Return on Invested Capital).

(3)   This is a non-GAAP metric that we define as the ratio of Net Debt at period end to (Adjusted EBITDA plus collections applied to principal balance for the preceding twelve months). See Supplemental Financial Information for a definition of Net Debt and Adjusted EBITDA and a reconciliation of Net Debt to total debt and Adjusted EBITDA to net income.

Conference Call and Webcast

Encore will host a conference call and slide presentation today, November 2, 2022, at 2:00 p.m. Pacific / 5:00 p.m. Eastern time, to present and discuss third quarter 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. The Company has included Pre-Tax ROIC as management uses this measure to monitor and evaluate operating performance relative to our invested capital and because the Company believes it is a useful measure for investors to evaluate effective use of capital. The Company has included Net Debt and Leverage Ratio as management uses these measures to monitor and evaluate its ability to incur and service debt. Adjusted EBITDA, Adjusted Income from Operations (used in Pre-Tax ROIC), Net Debt and Leverage Ratio have not been prepared in accordance with GAAP. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income and net income per share as indicators of the Company’s operating performance or liquidity. Further, these non-GAAP financial measures, 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, liquidity, ability to access capital markets, business plans or prospects. 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 Forms 10-K and 10-Q, each 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.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)

  September 30,
2022		   December 31,
2021
Assets      
Cash and cash equivalents $ 147,035     $ 189,645  
Investment in receivable portfolios, net   2,976,202       3,065,553  
Property and equipment, net   104,051       119,857  
Other assets   331,029       335,275  
Goodwill   769,548       897,795  
Total assets $ 4,327,865     $ 4,608,125  
Liabilities and Equity      
Liabilities:      
Accounts payable and accrued liabilities $ 197,471     $ 229,586  
Borrowings   2,690,220       2,997,331  
Other liabilities   247,245       195,947  
Total liabilities   3,134,936       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, 23,538 and 24,541 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively   235       245  
Additional paid-in capital   —       —  
Accumulated earnings   1,358,415       1,238,564  
Accumulated other comprehensive loss   (165,721 )     (53,548 )
Total stockholders’ equity   1,192,929       1,185,261  
Total liabilities and stockholders’ equity $ 4,327,865     $ 4,608,125  

The following table presents certain assets and liabilities of consolidated variable interest entities (“VIEs”) included in the condensed 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.

  September 30,
2022		   December 31,
2021
Assets      
Cash and cash equivalents $ 1,072   $ 1,927
Investment in receivable portfolios, net   410,630     498,507
Other assets   3,203     3,452
Liabilities      
Accounts payable and accrued liabilities   124     105
Borrowings   390,979     473,443
Other liabilities   16     10

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

  Three Months Ended
September 30,		   Nine Months Ended
September 30,
    2022       2021       2022       2021  
Revenues              
Revenue from receivable portfolios $ 297,219     $ 316,225     $ 907,606     $ 982,393  
Changes in recoveries   (13,080 )     65,913       179,293       176,628  
Total debt purchasing revenue   284,139       382,138       1,086,899       1,159,021  
Servicing revenue   21,992       29,321       71,926       93,901  
Other revenues   1,621       1,165       5,526       4,274  
Total revenues   307,752       412,624       1,164,351       1,257,196  
Operating expenses              
Salaries and employee benefits   89,241       94,662       285,077       288,892  
Cost of legal collections   52,891       64,170       163,756       198,212  
General and administrative expenses   37,274       35,819       105,775       102,790  
Other operating expenses   28,286       25,226       82,718       81,895  
Collection agency commissions   7,884       11,964       27,412       38,465  
Depreciation and amortization   11,659       14,136       35,134       37,694  
Total operating expenses   227,235       245,977       699,872       747,948  
Income from operations   80,517       166,647       464,479       509,248  
Other expense              
Interest expense   (39,308 )     (40,874 )     (110,995 )     (131,559 )
Loss on extinguishment of debt   —       —       —       (9,300 )
Other income (expense)   1,205       (17,504 )     3,392       (16,993 )
Total other expense   (38,103 )     (58,378 )     (107,603 )     (157,852 )
Income before income taxes   42,414       108,269       356,876       351,396  
Provision for income taxes   (10,920 )     (24,703 )     (89,194 )     (76,278 )
Net income   31,494       83,566       267,682       275,118  
Net income attributable to noncontrolling interest   —       —       —       (419 )
Net income attributable to Encore Capital Group, Inc. stockholders $ 31,494     $ 83,566     $ 267,682     $ 274,699  
               
Earnings per share attributable to Encore Capital Group, Inc.:              
Basic $ 1.31     $ 2.76     $ 11.00     $ 8.90  
Diluted $ 1.22     $ 2.66     $ 10.06     $ 8.71  
               
Weighted average shares outstanding:              
Basic   23,958       30,225       24,344       30,863  
Diluted   25,919       31,362       26,601       31,531  

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

  Nine Months Ended September 30,
    2022       2021  
Operating activities:      
Net income $ 267,682     $ 275,118  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization   35,134       37,694  
Loss on extinguishment of debt   —       9,300  
Other non-cash interest expense, net   11,984       13,677  
Stock-based compensation expense   12,231       12,903  
Deferred income taxes   2,127       (8,504 )
Changes in recoveries   (179,293 )     (176,628 )
Other, net   14,319       18,003  
Changes in operating assets and liabilities      
Other assets   36,768       58,772  
Accounts payable, accrued liabilities and other liabilities   (46,076 )     (28,345 )
Net cash provided by operating activities   154,876       211,990  
Investing activities:      
Purchases of receivable portfolios, net of put-backs   (569,032 )     (473,013 )
Collections applied to investment in receivable portfolios   567,775       803,185  
Purchases of asset held for sale   (38,604 )     (11,744 )
Purchases of property and equipment   (21,068 )     (24,163 )
Other, net   20,257       18,543  
Net cash (used in) provided by investing activities   (40,672 )     312,808  
Financing activities:      
Proceeds from credit facilities   637,342       418,941  
Repayment of credit facilities   (432,424 )     (713,958 )
Proceeds from senior secured notes   —       353,747  
Repayment of senior secured notes   (29,310 )     (349,355 )
Repayment of convertible senior notes   (221,153 )     (161,000 )
Repurchase and retirement of common stock   (76,753 )     (88,119 )
Other, net   (18,394 )     (24,929 )
Net cash used in financing activities   (140,692 )     (564,673 )
Net decrease in cash and cash equivalents   (26,488 )     (39,875 )
Effect of exchange rate changes on cash and cash equivalents   (16,122 )     8,934  
Cash and cash equivalents, beginning of period   189,645       189,184  
Cash and cash equivalents, end of period $ 147,035     $ 158,243  
       
Supplemental disclosure of cash information:      
Cash paid for interest $ 94,828     $ 100,335  
Cash paid for taxes, net of refunds $ 63,710     $ 42,815  

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

Adjusted EBITDA

  Three Months Ended
September 30,		   Nine Months Ended
September 30,
(in thousands, unaudited)   2022       2021       2022       2021  
GAAP net income, as reported $         31,494             $         83,566             $         267,682             $         275,118          
Adjustments:              
Interest expense           39,308                       40,874                       110,995                       131,559          
Interest income           (749 )             (270 )             (1,774 )             (1,170 )
Provision for income taxes           10,920                       24,703                       89,194                       76,278          
Depreciation and amortization           11,659                       14,136                       35,134                       37,694          
Stock-based compensation expense           3,191                       3,847                       12,231                       12,903          
Acquisition, integration and restructuring related expenses(1)           13                       17,950                       1,179                       17,950          
Loss on extinguishment of debt           —                       —                       —                       9,300          
Adjusted EBITDA $         95,836             $         184,806             $         514,641             $         559,632          
Collections applied to principal balance(2) $         179,163             $         188,181             $         402,842             $         641,765          

________________________

(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-Q for the period ending September 30, 2022.

Pre-Tax Return on Invested Capital (“ROIC”)

ROIC is calculated as last twelve months adjusted income from operations, divided by our average invested capital. Adjusted income from operations excludes acquisition, integration and restructuring related expenses, amortization of certain acquired intangible assets and other charges or gains that are not indicative of ongoing operations. Average invested capital is defined as the aggregate of average Net Debt (defined below) and average GAAP equity and is calculated as the sum of current and prior period ending amounts divided by two.

  Last Twelve Months Ended September 30,
(in thousands, except percentages, unaudited)   2022       2021  
Numerator      
Income from operations $ 588,503     $ 633,462  
Adjustments:(1)      
Acquisition, integration and restructuring related expenses   4,212       2,670  
Amortization of certain acquired intangible assets(2)   6,717       7,409  
Adjusted income from operations $ 599,432     $ 643,541  
       
Denominator      
Average Net Debt $ 2,666,562     $ 2,967,800  
Average equity   1,295,875       1,263,038  
Total average invested capital $ 3,962,437     $ 4,230,838  
       
Pre-tax ROIC   15.1 %     15.2 %

________________________

(1)   We believe these amounts are not indicative of ongoing operations; therefore, adjusting for them enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(2)   We have acquired intangible assets, such as trade names and customer relationships, as a result of our acquisition of debt solution service providers. These intangible assets are valued at the time of the acquisition and amortized over their estimated lives. We believe that amortization of acquisition-related intangible assets, especially the amortization of an acquired company’s trade names and customer relationships, is the result of pre-acquisition activities. In addition, the amortization of these acquired intangibles is a non-cash static expense that is not affected by operations during any reporting period.

Net Debt

Net Debt is GAAP borrowings adjusted for debt issuance costs and debt discounts, cash and cash equivalents and client cash. Net Debt is a measure commonly used by lenders to our industry to represent the net borrowings of market participants, and is also used regularly by lenders and others as the numerator in industry leverage calculations.

(in thousands, unaudited) September 30,
2022		   September 30,
2021		   September 30,
2020
GAAP Borrowings $ 2,690,220     $ 2,796,224     $ 3,252,101  
Debt issuance costs and debt discounts   45,436       60,268       106,511  
Cash & cash equivalents   (147,035 )     (158,243 )     (169,983 )
Client cash(1)   17,911       28,343       20,379  
Net Debt $ 2,606,532     $ 2,726,592     $ 3,209,008  

________________________

(1)   Client cash is cash that was collected on behalf of, and remains payable to, third party clients.
 

 


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Source: Encore Capital Group Inc