Encore Capital Group Announces Third Quarter 2023 Financial Results

• 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.

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^{(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	)%

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^{(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 Information

Reconciliation 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

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<sup>(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.</sup>