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Encore Capital Group Announces Third Quarter 2022 Financial Results
Source: Nasdaq GlobeNewswire / 02 Nov 2022 16:05:02 America/New_York
- 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.comSOURCE: 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,
2022December 31,
2021Assets 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,
2022December 31,
2021Assets 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 MetricsAdjusted 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,
2022September 30,
2021September 30,
2020GAAP 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.
- GAAP net income of $31 million