Encore Capital Group Announces Third Quarter 2023 Financial Results

About this update from Encore Capital Group Inc

Global collections of $465 million Portfolio purchases of $231 million including $179 million in the U.S. Portfolio supply growth and pricing improvement continues in U.S. market GAAP EPS of $0.79 SAN DIEGO , Nov. 01, 2023 (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, 2023 . “The third quarter was another period of strong purchasing for our U.S. business at attractive returns while our collections performance remained stable in each of our key markets,” said Ashish Masih , President and Chief Executive Officer. “The continued growth in U.S. portfolio supply, driven by credit card lending growth and rising charge off rates, has led to improved portfolio pricing and returns. As a result, our MCM business deployed $179 million in Q3 at an attractive 2.4x purchase price multiple(1).” “Our third quarter global collections of $465 million were in line with expectations and continue to reflect normalized consumer behavior and a stable collections environment.” “In Europe, the portfolio purchasing market remains very competitive. We continue to constrain Cabot portfolio purchases, reallocating capital to the U.S. market, as we believe European market pricing still does not yet fully reflect the higher cost of capital caused by higher interest rates.” “With growing supply and improving pricing in the U.S. debt buying market, we expect 2023 will be a record year of capital deployment for our MCM business at strong returns. Looking ahead, we see a robust supply pipeline in the U.S. for 2024 at even better returns.” “Given our outlook for the favorable purchasing environment in the U.S. continuing for the foreseeable future, we added approximately $175 million of liquidity since the end of the third quarter at attractive terms. Our ability to incrementally improve our purchasing capacity amid challenging capital market conditions is a testament to the strength of our global balance sheet.” “As a result of the continued, disciplined execution of our strategy and both higher portfolio purchases and strengthening returns in the U.S. , we expect to see steady growth in ERC and earnings. We also remain committed to the critical role we play in the consumer credit ecosystem and to helping consumers restore their financial health," said Masih. ______________________ (1) Purchase price multiple is calculated as (cumulative collections + ERC) ÷ purchase price. Financial Highlights for the Third Quarter of 2023 : Three Months Ended September 30 , (in thousands, except percentages and earnings per share) 2023 2022 Change Portfolio purchases(1) $ 230,559 $ 232,652 (1 )% Estimated Remaining Collections (ERC) $ 7,877,621 $ 7,312,336 8 % Collections $ 465,339 $ 458,256 2 % Revenues $ 309,619 $ 307,752 1 % Operating expenses $ 234,101 $ 227,235 3 % GAAP net income $ 19,339 $ 31,494 (39 )% GAAP earnings per share $ 0.79 $ 1.22 (35 )% ______________________ (1) Includes U.S. purchases of $179.3 million and $176.6 million , and Europe purchases of $51.3 million and $56.1 million in Q3 2023 and Q3 2022, respectively. Conference Call and Webcast Encore will host a conference call and slide presentation today, November 1, 2023 , 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. Adjusted EBITDA has not been prepared in accordance with GAAP and should not be considered as an alternative to, or more meaningful than, net income and net income per share as indicators 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. A reconciliation of Adjusted EBITDA to its most directly comparable GAAP financial measure is below. 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, supply and pricing, 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 [email protected] 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 , 2023 December 31 , 2022 Assets Cash and cash equivalents $ 144,711 $ 143,912 Investment in receivable portfolios, net 3,320,544 3,088,261 Property and equipment, net 102,208 113,900 Other assets 366,815 341,073 Goodwill 826,010 821,214 Total assets $ 4,760,288 $ 4,508,360 Liabilities and Equity Liabilities: Accounts payable and accrued liabilities $ 190,646 $ 198,217 Borrowings 3,114,175 2,898,821 Other liabilities 256,684 231,695 Total liabilities 3,561,505 3,328,733 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, 23,529 and 23,323 shares issued and outstanding as of September 30, 2023 and December 31, 2022 , respectively 235 233 Additional paid-in capital 8,106 — Accumulated earnings 1,319,933 1,278,210 Accumulated other comprehensive loss (129,491 ) (98,816 ) Total stockholders’ equity 1,198,783 1,179,627 Total liabilities and stockholders’ equity $ 4,760,288 $ 4,508,360 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 , 2023 December 31 , 2022 Assets Cash and cash equivalents $ 1,470 $ 1,344 Investment in receivable portfolios, net 445,653 431,350 Other assets 1,107 3,627 Liabilities Accounts payable and accrued liabilities 116 150 Borrowings 408,680 423,522 Other liabilities 18 105 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 , 2023 2022 2023 2022 Revenues Revenue from receivable portfolios $ 302,687 $ 297,219 $ 899,545 $ 907,606 Changes in recoveries (17,067 ) (13,080 ) (30,054 ) 179,293 Total debt purchasing revenue 285,620 284,139 869,491 1,086,899 Servicing revenue 19,893 21,992 63,486 71,926 Other revenues 4,106 1,621 12,316 5,526 Total revenues 309,619 307,752 945,293 1,164,351 Operating expenses Salaries and employee benefits 95,067 89,241 294,772 285,077 Cost of legal collections 56,274 52,891 167,525 163,756 General and administrative expenses 35,559 37,274 108,053 105,775 Other operating expenses 27,959 28,286 81,864 82,718 Collection agency commissions 8,046 7,884 26,583 27,412 Depreciation and amortization 11,196 11,659 32,768 35,134 Total operating expenses 234,101 227,235 711,565 699,872 Income from operations 75,518 80,517 233,728 464,479 Other expense Interest expense (50,558 ) (39,308 ) (147,376 ) (110,995 ) Other income, net 5,103 1,205 5,080 3,392 Total other expense (45,455 ) (38,103 ) (142,296 ) (107,603 ) Income before income taxes 30,063 42,414 91,432 356,876 Provision for income taxes (10,724 ) (10,920 ) (27,162 ) (89,194 ) Net income $ 19,339 $ 31,494 $ 64,270 $ 267,682 Earnings per share: Basic $ 0.82 $ 1.31 $ 2.72 $ 11.00 Diluted $ 0.79 $ 1.22 $ 2.62 $ 10.06 Weighted average shares outstanding: Basic 23,712 23,958 23,644 24,344 Diluted 24,382 25,919 24,535 26,601 ENCORE CAPITAL GROUP, INC. Condensed Consolidated Statements of Cash Flows (Unaudited, In Thousands) Nine Months Ended September 30 , 2023 2022 Operating activities: Net income $ 64,270 $ 267,682 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 32,768 35,134 Other non-cash interest expense, net 12,526 11,984 Stock-based compensation expense 11,017 12,231 Deferred income taxes 952 2,127 Changes in recoveries 30,054 (179,293 ) Other, net (1,958 ) 14,319 Changes in operating assets and liabilities Other assets (21,820 ) 36,768 Accounts payable, accrued liabilities and other liabilities (11,598 ) (46,076 ) Net cash provided by operating activities 116,211 154,876 Investing activities: Purchases of receivable portfolios, net of put-backs (772,101 ) (569,032 ) Collections applied to investment in receivable portfolios 504,672 567,775 Purchases of asset held for sale (24,645 ) (38,604 ) Purchases of property and equipment (16,765 ) (21,068 ) Other, net 38,113 20,257 Net cash used in investing activities (270,726 ) (40,672 ) Financing activities: Payment of loan and debt refinancing costs (8,224 ) (1,659 ) Proceeds from credit facilities 630,079 637,342 Repayment of credit facilities (446,724 ) (432,424 ) Repayment of senior secured notes (29,310 ) (29,310 ) Proceeds from issuance of convertible senior notes 230,000 — Repayment of convertible and exchangeable senior notes (212,480 ) (221,153 ) Proceeds from convertible hedge instruments, net 12,421 — Repurchase and retirement of common stock — (76,753 ) Other, net (16,890 ) (16,735 ) Net cash provided by (used in) financing activities 158,872 (140,692 ) Net increase (decrease) in cash and cash equivalents 4,357 (26,488 ) Effect of exchange rate changes on cash and cash equivalents (3,558 ) (16,122 ) Cash and cash equivalents, beginning of period 143,912 189,645 Cash and cash equivalents, end of period $ 144,711 $ 147,035 Supplemental disclosure of cash information: Cash paid for interest $ 120,113 $ 94,828 Cash paid for taxes, net of refunds $ 50,605 $ 63,710 ENCORE CAPITAL GROUP, INC. Supplemental Financial InformationReconciliation of Non-GAAP Metrics Adjusted EBITDA Three Months Ended September 30 , Nine Months Ended September 30 , (in thousands, unaudited) 2023 2022 2023 2022 GAAP net income, as reported $ 19,339 $ 31,494 $ 64,270 $ 267,682 Adjustments: Interest expense 50,558 39,308 147,376 110,995 Interest income (1,315 ) (749 ) (3,382 ) (1,774 ) Provision for income taxes 10,724 10,920 27,162 89,194 Depreciation and amortization 11,196 11,659 32,768 35,134 Stock-based compensation expense 3,092 3,191 11,017 12,231 Net gain on derivative instruments(1) (3,512 ) — (3,512 ) — Acquisition, integration and restructuring related expenses(2) 594 13 6,574 1,179 Adjusted EBITDA $ 90,676 $ 95,836 $ 282,273 $ 514,641 Collections applied to principal balance(3) $ 188,872 $ 179,163 $ 562,511 $ 402,842 ________________________(1) Amount represents a $3.7 million gain recognized as a result of the partial dedesignation in September 2023 of a derivative instrument previously designated as a hedging instrument, net of a $0.2 million loss recognized on the change in fair value of the portion of the derivative that is not designated as a hedging instrument after the dedesignation. We adjust for this amount because we believe the gain or loss on derivative contracts is not indicative of ongoing operations.(2) 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. For the three and nine months ended September 30, 2023 amount represents costs related to headcount reductions in Europe . The remainder of the costs relating to the headcount reductions in Europe are included in stock-based compensation expense.(3) 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 other receivable portfolios. 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, 2023 . Source: Encore Capital Group, Inc.

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