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Encore Capital Group Announces Second Quarter 2022 Financial Results
Source: Nasdaq GlobeNewswire / 03 Aug 2022 16:05:01 America/New_York
- GAAP net income of $60 million
- GAAP EPS of $2.29
- Global collections of $498 million
- Portfolio purchases of $173 million at attractive returns
SAN DIEGO, Aug. 03, 2022 (GLOBE NEWSWIRE) -- Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company, today reported consolidated financial results for the second quarter ended June 30, 2022.
“Encore delivered another quarter of strong operating performance in Q2,” said Ashish Masih, President and Chief Executive Officer. “Our financial results in the period were again driven primarily by collections within our MCM business in the U.S. As a result of our collections over-performance in recent quarters, we increased the estimated remaining collections (ERC) for certain vintages for the second straight quarter, but this time on a much smaller scale.”
“On a global basis, our portfolio purchases were $173 million in the quarter, an increase of 21% compared to the second quarter a year ago. We continue to acquire portfolios at attractive returns, enabled by our disciplined purchasing and collections effectiveness. Credit card lending, which has been growing steadily, has surpassed pre-pandemic levels in the U.S. and we have started to see an increase in portfolio supply for our MCM business. We remain well-positioned for future portfolio purchasing opportunities and will continue to focus on our consumer-centric approach to collections and our strong balance sheet,” said Masih.
Financial Highlights for the Second Quarter of 2022:
Three Months Ended June 30, (in thousands, except percentages and earnings per share) 2022 2021 Change Collections $ 497,711 $ 612,427 (19)% Revenues $ 356,917 $ 427,735 (17)% Portfolio purchases(1) $ 173,007 $ 142,728 21% Estimated Remaining Collections (ERC) $ 7,559,820 $ 8,111,917 (7)% Operating expenses $ 237,969 $ 253,448 (6)% GAAP net income attributable to Encore $ 60,439 $ 96,503 (37)% GAAP earnings per share $ 2.29 $ 3.07 (25)% LTM Pre-tax ROIC(2) 16.8 % 15.0 % +180bps Leverage Ratio(3) 2.0x 1.9x +0.1x ______________________ (1) Includes U.S. purchases of $116.2 million and $89.5 million, and Europe purchases of $56.8 million and $53.2 million in Q2 2022 and Q2 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 WebcastEncore will host a conference call and slide presentation today, August 3, 2022, at 2:00 p.m. Pacific / 5:00 p.m. Eastern time, to present and discuss second 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.comSOURCE: Encore Capital Group, Inc.
FINANCIAL TABLES FOLLOW
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)June 30,
2022December 31,
2021Assets Cash and cash equivalents $ 154,295 $ 189,645 Investment in receivable portfolios, net 3,035,123 3,065,553 Property and equipment, net 109,591 119,857 Other assets 336,265 335,275 Goodwill 824,210 897,795 Total assets $ 4,459,484 $ 4,608,125 Liabilities and Equity Liabilities: Accounts payable and accrued liabilities $ 201,168 $ 229,586 Borrowings 2,793,009 2,997,331 Other liabilities 233,707 195,947 Total liabilities 3,227,884 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, 23,989 and 24,541 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively 240 245 Additional paid-in capital — — Accumulated earnings 1,349,937 1,238,564 Accumulated other comprehensive loss (118,577 ) (53,548 ) Total stockholders’ equity 1,231,600 1,185,261 Total liabilities and stockholders’ equity $ 4,459,484 $ 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.June 30,
2022December 31,
2021Assets Cash and cash equivalents $ 1,130 $ 1,927 Investment in receivable portfolios, net 452,013 498,507 Other assets 3,545 3,452 Liabilities Accounts payable and accrued liabilities 159 105 Borrowings 426,108 473,443 Other liabilities 17 10
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
(Unaudited)Three Months Ended
June 30,Six Months Ended
June 30,2022 2021 2022 2021 Revenues Revenue from receivable portfolios $ 306,282 $ 328,150 $ 610,387 $ 666,168 Changes in recoveries 25,150 66,178 192,373 110,715 Total debt purchasing revenue 331,432 394,328 802,760 776,883 Servicing revenue 23,788 32,064 49,934 64,580 Other revenues 1,697 1,343 3,905 3,109 Total revenues 356,917 427,735 856,599 844,572 Operating expenses Salaries and employee benefits 98,880 97,774 195,836 194,230 Cost of legal collections 55,148 66,900 110,865 134,042 General and administrative expenses 34,967 34,823 68,501 66,971 Other operating expenses 27,405 28,228 54,432 56,669 Collection agency commissions 9,923 13,677 19,528 26,501 Depreciation and amortization 11,646 12,046 23,475 23,558 Total operating expenses 237,969 253,448 472,637 501,971 Income from operations 118,948 174,287 383,962 342,601 Other expense Interest expense (37,054 ) (44,159 ) (71,687 ) (90,685 ) Loss on extinguishment of debt — (9,300 ) — (9,300 ) Other income 1,795 566 2,187 511 Total other expense (35,259 ) (52,893 ) (69,500 ) (99,474 ) Income before income taxes 83,689 121,394 314,462 243,127 Provision for income taxes (23,250 ) (24,607 ) (78,274 ) (51,575 ) Net income 60,439 96,787 236,188 191,552 Net income attributable to noncontrolling interest — (284 ) — (419 ) Net income attributable to Encore Capital Group, Inc. stockholders $ 60,439 $ 96,503 $ 236,188 $ 191,133 Earnings per share attributable to Encore Capital Group, Inc.: Basic $ 2.48 $ 3.12 $ 9.63 $ 6.13 Diluted $ 2.29 $ 3.07 $ 8.77 $ 6.04 Weighted average shares outstanding: Basic 24,359 30,909 24,539 31,187 Diluted 26,411 31,415 26,945 31,622
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)Six Months Ended June 30, 2022 2021 Operating activities: Net income $ 236,188 $ 191,552 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 23,475 23,558 Loss on extinguishment of debt — 9,300 Other non-cash interest expense, net 8,149 9,403 Stock-based compensation expense 9,040 9,056 Deferred income taxes 3,699 (5,097 ) Changes in recoveries (192,373 ) (110,715 ) Other, net 9,267 12,006 Changes in operating assets and liabilities Other assets 39,037 60,880 Accounts payable, accrued liabilities and other liabilities (37,952 ) (50,978 ) Net cash provided by operating activities 98,530 148,965 Investing activities: Purchases of receivable portfolios, net of put-backs (337,932 ) (306,549 ) Collections applied to investment in receivable portfolios 406,738 552,720 Purchases of asset held for sale (35,178 ) (3,639 ) Purchases of property and equipment (11,937 ) (10,351 ) Other, net 13,416 8,516 Net cash provided by investing activities 35,107 240,697 Financing activities: Proceeds from credit facilities 446,853 358,063 Repayment of credit facilities (298,743 ) (511,200 ) Proceeds from senior secured notes — 353,747 Repayment of senior secured notes (19,540 ) (339,585 ) Repayment of convertible senior notes (221,153 ) (161,000 ) Repurchase of common stock (50,835 ) (47,421 ) Other, net (12,182 ) (22,251 ) Net cash used in financing activities (155,600 ) (369,647 ) Net (decrease) increase in cash and cash equivalents (21,963 ) 20,015 Effect of exchange rate changes on cash and cash equivalents (13,387 ) (10,683 ) Cash and cash equivalents, beginning of period 189,645 189,184 Cash and cash equivalents, end of period $ 154,295 $ 198,516 Supplemental disclosure of cash information: Cash paid for interest $ 64,366 $ 69,152 Cash paid for taxes, net of refunds $ 44,671 $ 24,273
ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Non-GAAP MetricsAdjusted EBITDA
Three Months Ended
June 30,Six Months Ended
June 30,(in thousands, unaudited) 2022 2021 2022 2021 GAAP net income, as reported $ 60,439 $ 96,787 $ 236,188 $ 191,552 Adjustments: Interest expense 37,054 44,159 71,687 90,685 Interest income (588 ) (426 ) (1,025 ) (900 ) Provision for income taxes 23,250 24,607 78,274 51,575 Depreciation and amortization 11,646 12,046 23,475 23,558 Stock-based compensation expense 5,119 5,651 9,040 9,056 Acquisition, integration and restructuring related expenses(1) 487 — 1,166 — Loss on extinguishment of debt $ — $ 9,300 $ — $ 9,300 Adjusted EBITDA $ 137,407 $ 192,124 $ 418,805 $ 374,826 Collections applied to principal balance(2) $ 170,112 $ 224,074 $ 223,679 $ 453,584 ________________________ (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 June 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 June 30, (in thousands, except percentages, unaudited) 2022 2021 Numerator Income from operations $ 674,633 $ 609,269 Adjustments:(1) CFPB settlement fees — 15,009 Acquisition, integration and restructuring related expenses 6,847 (1 ) Amortization of certain acquired intangible assets(2) 7,110 7,326 Adjusted income from operations $ 688,590 $ 631,603 Denominator Average Net Debt $ 2,798,699 $ 3,016,599 Average equity 1,292,975 1,198,369 Total average invested capital $ 4,091,674 $ 4,214,968 Pre-tax ROIC 16.8 % 15.0 % ________________________ (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 DebtNet 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) June 30,
2022June 30,
2021June 30,
2020GAAP Borrowings $ 2,793,009 $ 2,999,296 $ 3,353,730 Debt issuance costs and debt discounts 50,304 64,468 63,017 Cash & cash equivalents (154,295 ) (198,516 ) (293,800 ) Client cash(1) 19,227 23,907 21,097 Net Debt $ 2,708,245 $ 2,889,155 $ 3,144,044 ________________________ (1) Client cash is cash that was collected on behalf of, and remains payable to, third party clients. 
