Encore Capital Group Announces Third Quarter 2021 Financial Results

| Source: Encore Capital Group Inc Encore Capital Group Inc

  • Collections of $567 million
  • GAAP EPS of $2.66
  • Share repurchases of $41 million in Q3 2021 and $88 million YTD through three quarters
  • Launching $300 million tender offer for Encore common shares on November 4

SAN DIEGO, Nov. 03, 2021 (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, 2021.

“The third quarter for Encore was another period of strong performance as we continued to execute our strategy and deliver on our financial objectives, which include a focus on our capital allocation priorities,” said Ashish Masih, President and Chief Executive Officer. “Our financial performance was driven primarily by our strong collections in the period, particularly within our MCM business.”

“On a global basis, our portfolio purchases were $168 million in the quarter, nearly matching the $170 million purchase total from the third quarter a year ago. Despite lower market supply due to fewer charge-offs, we continue to acquire portfolios at attractive returns, which is enabled by our disciplined purchasing as well as our superior analytics and collections effectiveness.”

“Our business continues to perform extremely well, delivering strong returns and cash flows. As a result, our balance sheet has continued to strengthen as we have further reduced our leverage ratio1 to 1.8x, which is now below our target range of 2 to 3x. After purchasing $88 million of Encore shares through three quarters of 2021, including $41 million in the third quarter, we are now accelerating the return of capital by initiating a tender offer. Tomorrow morning we plan to launch a $300 million tender offer for our common shares. After the completion of the tender, assuming we purchase the entire $300 million amount, we expect to maintain a strong financial position, with approximately $700 million in available liquidity, leverage still at the low end of our target range and full access to capital markets. This strong position provides us ample liquidity to fully capitalize on future portfolio purchasing opportunities,” said Masih.

1 Leverage ratio defined below.

Financial Highlights for the Third Quarter of 2021:

 Three Months Ended September 30,
(in thousands, except percentages and earnings per share)2021 2020 Change
Collections$566,690  $539,748  5%
Revenues$412,624  $403,676  2%
Portfolio purchases(1)$168,188  $170,131  (1)%
Estimated Remaining Collections (ERC)$7,879,353  $8,459,739  (7)%
Operating expenses$245,977  $261,221  (6)%
GAAP net income attributable to Encore$83,566  $54,650  53%
GAAP earnings per share$2.66  $1.72  55%
LTM Pre-tax ROIC(2)15.2% 12.7% +250bps 
Leverage Ratio(3) 1.8x   2.4x  -0.6x 


______________________
(1)Includes U.S. purchases of $102.3 million and $141.1 million, and Europe purchases of $65.8 million and $29.1 million in Q3 2021 and Q3 2020, 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.
  

Financial Highlights Year-to-Date through the Third Quarter of 2021:

 Nine Months Ended September 30,
(in thousands, except percentages and earnings per share)
2021 2020 Change
Collections$1,785,578  $1,575,242  13%
Revenues$1,257,196  $1,118,790  12%
Portfolio purchases(1)$481,094  $532,183  (10)%
Operating expenses$747,948  $709,441  5%
GAAP net income attributable to Encore$274,699  $174,528  57%
GAAP earnings per share$8.71  $5.51  58%


______________________
(1)Includes U.S. purchases of $284.2 million and $451.1 million, and Europe purchases of $196.9 million and $81.0 million in nine months ended September 30, 2021 and 2020, respectively.
  

Conference Call and Webcast

Encore will host a conference call and slide presentation today, November 3, 2021, 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, listen-only telephone conference portion, please dial (855) 541-0982 or (704) 288-0606.

For those who cannot listen to the live broadcast, a telephonic replay will be available for seven days by dialing (800) 585-8367 or (404) 537-3406 and entering the conference ID number 5995723. A replay of the webcast will also be available shortly after the call on the Company's website.

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 information concerning adjusted operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for the portfolio purchasing and recovery business in the periods presented. 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 operating expenses, 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, net income per share, and total operating expenses 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. More information about the Company's Cabot Credit Management subsidiary can be found at http://www.cabotcm.com. Information found on the company’s or Cabot’s website is not incorporated by reference.

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, 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.com

SOURCE: Encore Capital Group, Inc.


FINANCIAL TABLES FOLLOW


ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)

 September 30,
2021		 December 31,
2020
Assets   
Cash and cash equivalents$158,243   $189,184  
Investment in receivable portfolios, net3,083,271   3,291,918  
Property and equipment, net121,097   127,297  
Other assets291,840   349,162  
Goodwill895,515   906,962  
Total assets$4,549,966   $4,864,523  
Liabilities and Equity   
Liabilities:   
Accounts payable and accrued liabilities$214,486   $215,920  
Borrowings2,796,224   3,281,634  
Other liabilities140,436   146,893  
Total liabilities3,151,146   3,644,447  
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, 29,598 and 31,345 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively296   313  
Additional paid-in capital105,326   230,440  
Accumulated earnings1,352,825   1,055,668  
Accumulated other comprehensive loss(59,627)  (68,813) 
Total Encore Capital Group, Inc. stockholders’ equity1,398,820   1,217,608  
Noncontrolling interest—   2,468  
Total equity1,398,820   1,220,076  
Total liabilities and equity$4,549,966   $4,864,523  
          

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.

 September 30,
2021		 December 31,
2020
Assets   
Cash and cash equivalents$718  $2,223 
Investment in receivable portfolios, net500,304  553,621 
Other assets4,285  5,127 
Liabilities   
Borrowings471,570  478,131 
Other liabilities10  37 
      

ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2021 2020 2021 2020
Revenues       
Revenue from receivable portfolios$316,225   $342,489   $982,393   $1,035,141  
Changes in recoveries65,913   30,451   176,628   (2,203) 
Total debt purchasing revenue382,138   372,940   1,159,021   1,032,938  
Servicing revenue29,321   29,787   93,901   82,417  
Other revenues1,165   949   4,274   3,435  
Total revenues412,624   403,676   1,257,196   1,118,790  
Operating expenses       
Salaries and employee benefits94,662   95,979   288,892   279,944  
Cost of legal collections64,170   60,383   198,212   164,018  
General and administrative expenses35,819   53,459   102,790   113,954  
Other operating expenses25,226   28,088   81,895   83,527  
Collection agency commissions11,964   12,703   38,465   36,562  
Depreciation and amortization14,136   10,609   37,694   31,436  
Total operating expenses245,977   261,221   747,948   709,441  
Income from operations166,647   142,455   509,248   409,349  
Other expense       
Interest expense(40,874)  (52,974)  (131,559)  (157,963) 
Loss on extinguishment of debt—   (14,988)  (9,300)  (14,988) 
Other (expense) income(17,504)  361   (16,993)  (1,211) 
Total other expense(58,378)  (67,601)  (157,852)  (174,162) 
Income before income taxes108,269   74,854   351,396   235,187  
Provision for income taxes(24,703)  (19,747)  (76,278)  (59,875) 
Net income83,566   55,107   275,118   175,312  
Net income attributable to noncontrolling interest—   (457)  (419)  (784) 
Net income attributable to Encore Capital Group, Inc. stockholders$83,566   $54,650   $274,699   $174,528  
        
Earnings per share attributable to Encore Capital Group, Inc.:       
Basic$2.76   $1.74   $8.90   $5.56  
Diluted$2.66   $1.72   $8.71   $5.51  
        
Weighted average shares outstanding:       
Basic30,225   31,484   30,863   31,402  
Diluted31,362   31,826   31,531   31,672  
                

ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)

 Nine Months Ended September 30,
 2021 2020
Operating activities:   
Net income$275,118   $175,312  
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization37,694   31,436  
Expense related to financing9,300   19,791  
Other non-cash interest expense, net13,677   22,725  
Stock-based compensation expense12,903   13,189  
Deferred income taxes(8,504)  (15,070) 
Changes in recoveries(176,628)  2,203  
Other, net18,003   24,469  
Changes in operating assets and liabilities   
Other assets13,320   14,267  
Prepaid income tax and income taxes payable40,590   (11,226) 
Accounts payable, accrued liabilities and other liabilities(23,483)  (27,114) 
Net cash provided by operating activities211,990   249,982  
Investing activities:   
Purchases of receivable portfolios, net of put-backs(473,013)  (517,959) 
Collections applied to investment in receivable portfolios, net803,185   540,101  
Purchases of property and equipment(24,163)  (22,658) 
Other, net6,799   8,091  
Net cash provided by investing activities312,808   7,575  
Financing activities:   
Payment of loan and debt refinancing costs(11,667)  (48,676) 
Proceeds from credit facilities418,941   1,695,914  
Repayment of credit facilities(713,958)  (2,051,764) 
Proceeds from senior secured notes353,747   410,820  
Repayment of senior secured notes(349,355)  (152,430) 
Repayment of convertible senior notes(161,000)  (89,355) 
Repurchase of common stock(88,119)  —  
Other, net(13,262)  (32,400) 
Net cash used in financing activities(564,673)  (267,891) 
Net decrease in cash and cash equivalents(39,875)  (10,334) 
Effect of exchange rate changes on cash and cash equivalents8,934   (12,018) 
Cash and cash equivalents, beginning of period189,184   192,335  
Cash and cash equivalents, end of period$158,243   $169,983  
    
Supplemental disclosure of cash information:   
Cash paid for interest$100,335   $148,059  
Cash paid for taxes, net of refunds42,815   87,154  
        

ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information

Reconciliation of Adjusted EBITDA to GAAP Net Income, and Adjusted Operating Expenses Related to Portfolio Purchasing and Recovery Business to GAAP Total Operating Expenses
(In Thousands, Except Per Share amounts) (Unaudited)

 Three Months Ended
September 30,		 Nine Months Ended
September 30,		 Twelve Months Ended
September 30,
2021 2020 2021 2020 2021 2020
GAAP net income, as reported$83,566   $55,107   $275,118   $175,312   $312,329   $218,544  
Adjustments:           
Interest expense40,874   52,974   131,559   157,963   182,952   211,478  
Interest income(270)  (394)  (1,170)  (1,953)  (1,614)  (2,796) 
Provision for income taxes24,703   19,747   76,278   59,875   86,778   73,761  
Depreciation and amortization14,136   10,609   37,694   31,436   49,038   42,729  
CFPB settlement fees(1)—   15,009   —   15,009   —   15,009  
Stock-based compensation expense3,847   3,884   12,903   13,189   16,274   16,334  
Acquisition, integration and restructuring related expenses(2)17,950   (23)  17,950   4,940   17,972   5,644  
Loss on extinguishment of debt—   14,988   9,300   14,988   35,263   14,988  
Adjusted EBITDA$184,806   $171,901   $559,632   $470,759   $698,992   $595,691  
Collections applied to principal balance(3)$188,181   $172,406   $641,765   $547,902   $834,213   $737,336  


________________________
(1)Amount represents a charge resulting from the Stipulated Judgment with the CFPB. We have adjusted for this amount because we believe it is not indicative of ongoing operations; therefore, adjusting for it enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(2)Amount represents acquisition, integration and restructuring related expenses, including the loss recognized on the sale of our investment in Colombia and Peru of $17.4 million during the three and nine months ended September 30, 2021 and the loss on sale of our investment in Brazil of $4.8 million during the nine months ended September 30, 2020. 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.
(3)For periods prior to January 1, 2020, amount represents (a) gross collections from receivable portfolios less the sum of (b) revenue from receivable portfolios and (c) allowance charges or allowance reversals on receivable portfolios. For periods subsequent to January 1, 2020, amount represents (a) gross collections from receivable portfolios less (b) debt purchasing revenue. For consistency with the Company debt covenant reporting, for periods subsequent to June 30, 2020, the collections applied to principal balance also includes proceeds applied to basis from sales of REO assets and related activities; prior period amounts have not been adjusted to reflect this change as such amounts were immaterial. 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, 2021.
  

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
GAAP total operating expenses, as reported$245,977   $261,221   $747,948   $709,441  
Adjustments:       
Operating expenses related to non-portfolio purchasing and recovery business(1)(47,088)  (54,001)  (133,008)  (137,876) 
CFPB settlement fees(2)—   (15,009)  —   (15,009) 
Stock-based compensation expense(3,847)  (3,884)  (12,903)  (13,189) 
Acquisition, integration and restructuring related operating expenses(3)—   23   —   (132) 
Adjusted operating expenses related to portfolio purchasing and recovery business$195,042   $188,350   $602,037   $543,235  


________________________
(1)Operating expenses related to non-portfolio purchasing and recovery business include operating expenses from other operating segments that primarily engage in fee-based business, as well as corporate overhead not related to our portfolio purchasing and recovery business.
(2)Amount represents a charge resulting from the Stipulated Judgment with the CFPB. We have adjusted for this amount because we believe it is not indicative of ongoing operations; therefore, adjusting for it enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(3)Amount represents acquisition, integration and restructuring related operating expenses. We adjust for this amount because we believe these operating expenses are not indicative of ongoing operations; therefore, adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
  

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)2021 2020
Numerator   
Income from operations$633,462 $522,559
Adjustments:(1)   
CFPB settlement fees— 15,009
Acquisition, integration and restructuring related expenses2,670 836
Amortization of certain acquired intangible assets(2)7,409 6,866
Adjusted income from operations$643,541 $545,270
    
Denominator   
Average Net Debt$2,967,800 $3,274,692
Average equity1,263,038 1,025,627
Total average invested capital$4,230,838 $4,300,319
    
Pre-tax ROIC 15.2 %  12.7 %


________________________
(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)September 30,
2021		 September 30,
2020		 September 30,
2019
GAAP Borrowings$2,796,224  $3,252,101  $3,429,342 
Debt issuance costs and debt discounts60,268  106,511  75,314 
Cash & cash equivalents(158,243) (169,983) (186,677)
Client cash(1)28,343  20,379  22,397 
Net Debt$2,726,592  $3,209,008  $3,340,376 


________________________
(1)Client cash is cash that was collected on behalf of, and remains payable to, third party clients.