ecpg-20221102
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
November 2, 2022
Date of report (Date of earliest event reported)
______________________
ENCORE CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
000-26489
48-1090909
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)
350 Camino de la Reina, Suite 100
San Diego, California 92108
(Address of principal executive offices)(Zip Code)
(877) 445-4581
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report.)
_____________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par Value Per ShareECPGThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐




Item 2.02.    Results of Operations and Financial Condition.
On November 2, 2022, Encore Capital Group, Inc. (“Encore”) issued a press release announcing its financial results for the quarter ended September 30, 2022. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.
The information in Item 2.02 of this Current Report on Form 8-K, including the information contained in Exhibit 99.1, is being furnished to the Securities and Exchange Commission pursuant to Item 2.02, and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by a specific reference in such filing.
Item 9.01.    Financial Statements and Exhibits.
Exhibit Number
Description
Press release dated November 2, 2022
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)





SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ENCORE CAPITAL GROUP, INC.

Date:
November 2, 2022
/s/ Jonathan C. Clark
Jonathan C. Clark
Executive Vice President, Chief Financial Officer and Treasurer





EXHIBIT INDEX
Exhibit NumberDescription
Press release dated November 2, 2022
104Cover Page Interactive Data File (embedded within the Inline XBRL document)




Document
https://cdn.kscope.io/2efa155793f239e599489c1b964ab4d2-ecpglogoa.jpg
Exhibit 99.1


Encore Capital Group Announces Third Quarter 2022 Financial Results
GAAP net income of $31 million
GAAP EPS of $1.22
Global collections of $458 million
Portfolio purchases of $233 million

SAN DIEGO, November 2, 2022 -- 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.



Encore Capital Group, Inc.
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Financial Highlights for the Third Quarter of 2022:
Three Months Ended September 30,
(in thousands, except percentages and earnings per share)20222021Change
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)
2.1x1.8x+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.



Encore Capital Group, Inc.
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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.




Encore Capital Group, Inc.
Page 4


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.
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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, net2,976,202 3,065,553 
Property and equipment, net104,051 119,857 
Other assets331,029 335,275 
Goodwill769,548 897,795 
Total assets
$4,327,865 $4,608,125 
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities$197,471 $229,586 
Borrowings2,690,220 2,997,331 
Other liabilities247,245 195,947 
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 earnings1,358,415 1,238,564 
Accumulated other comprehensive loss(165,721)(53,548)
Total stockholders’ equity1,192,929 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, net410,630 498,507 
Other assets3,203 3,452 
Liabilities
Accounts payable and accrued liabilities124 105 
Borrowings390,979 473,443 
Other liabilities16 10 


Encore Capital Group, Inc.
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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,
2022202120222021
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 revenue284,139 382,138 1,086,899 1,159,021 
Servicing revenue21,992 29,321 71,926 93,901 
Other revenues1,621 1,165 5,526 4,274 
Total revenues307,752 412,624 1,164,351 1,257,196 
Operating expenses
Salaries and employee benefits89,241 94,662 285,077 288,892 
Cost of legal collections52,891 64,170 163,756 198,212 
General and administrative expenses37,274 35,819 105,775 102,790 
Other operating expenses28,286 25,226 82,718 81,895 
Collection agency commissions7,884 11,964 27,412 38,465 
Depreciation and amortization11,659 14,136 35,134 37,694 
Total operating expenses227,235 245,977 699,872 747,948 
Income from operations80,517 166,647 464,479 509,248 
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 taxes42,414 108,269 356,876 351,396 
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:
Basic23,958 30,225 24,344 30,863 
Diluted25,919 31,362 26,601 31,531 


Encore Capital Group, Inc.
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ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
Nine Months Ended September 30,
20222021
Operating activities:
Net income$267,682 $275,118 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization35,134 37,694 
Loss on extinguishment of debt— 9,300 
Other non-cash interest expense, net11,984 13,677 
Stock-based compensation expense12,231 12,903 
Deferred income taxes2,127 (8,504)
Changes in recoveries(179,293)(176,628)
Other, net14,319 18,003 
Changes in operating assets and liabilities
Other assets36,768 58,772 
Accounts payable, accrued liabilities and other liabilities(46,076)(28,345)
Net cash provided by operating activities154,876 211,990 
Investing activities:
Purchases of receivable portfolios, net of put-backs(569,032)(473,013)
Collections applied to investment in receivable portfolios567,775 803,185 
Purchases of asset held for sale(38,604)(11,744)
Purchases of property and equipment(21,068)(24,163)
Other, net20,257 18,543 
Net cash (used in) provided by investing activities(40,672)312,808 
Financing activities:
Proceeds from credit facilities637,342 418,941 
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 period189,645 189,184 
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.
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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)2022202120222021
GAAP net income, as reported$31,494 $83,566 $267,682 $275,118 
Adjustments:
Interest expense39,308 40,874 110,995 131,559 
Interest income(749)(270)(1,774)(1,170)
Provision for income taxes10,920 24,703 89,194 76,278 
Depreciation and amortization11,659 14,136 35,134 37,694 
Stock-based compensation expense3,191 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.


















Encore Capital Group, Inc.
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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)20222021
Numerator
Income from operations$588,503$633,462
Adjustments:(1)
Acquisition, integration and restructuring related expenses4,2122,670
Amortization of certain acquired intangible assets(2)
6,7177,409
Adjusted income from operations$599,432$643,541
Denominator
Average Net Debt$2,666,562$2,967,800
Average equity1,295,8751,263,038
Total average invested capital$3,962,437$4,230,838
Pre-tax ROIC15.1 %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 discounts45,436 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.