News PRESS RELEASE

Encore Capital Group Announces Second Quarter 2021 Financial Results

August 4, 2021

  • Record collections of $612 million 
  • GAAP net income of $97 million 
  • GAAP EPS of $3.07 
  • Leverage of 1.9x, down from 2.4x a year ago
  • Share repurchases of $27M in Q2 2021

SAN DIEGO, Aug. 04, 2021 (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, 2021.

“Encore delivered another period of strong performance in the second quarter as we continued to execute our strategy, improve our balance sheet and focus on our capital allocation priorities,” said Ashish Masih, President and Chief Executive Officer. “The primary driver of our financial performance in the period was our record collections for both our MCM and Cabot businesses. We continue to see consumers focus on resolving their debts, which led to a high volume of inbound calls and online engagement.”

“On a global basis, our portfolio purchases were $143 million in the quarter, which was lower than last year due to a lower level of supply coming to market. Although issuers continue to sell, volumes are lower because of fewer charge-offs. As these conditions persist, we have remained disciplined and continue to purchase at attractive returns. ”

Our business continues to generate a significant amount of excess capital, driving a further reduction in our leverage ratio, which is now at the low end of our target range of 2 to 3 times. Consistent with our capital allocation priorities, we spent $27 million to repurchase Encore shares during the second quarter,” said Masih.

In June, the company refinanced the remainder of its legacy Cabot bonds with £250 million of new senior secured notes with a 325-basis point lower coupon while also extending the maturity from 2023 to 2028. The company expects the interest savings from the new notes will pay back the call premium from the redemption of the previous notes by the end of 2021.

Financial Highlights for the Second Quarter of 2021:

  Three Months Ended June 30,
(in thousands, except percentages and earnings per share) 2021   2020   Change
Collections $ 612,427     $ 508,215     21 %
Revenues $ 427,735     $ 426,033     %
Portfolio purchases(1) $ 142,728     $ 147,939     (4 )%
Estimated Remaining Collections (ERC) $ 8,111,917     $ 8,381,829     (3 )%
Operating expenses $ 253,448     $ 206,341     23 %
GAAP net income attributable to Encore $ 96,503     $ 130,332     (26 )%
GAAP earnings per share $ 3.07     $ 4.13     (26 )%
LTM Pre-tax ROIC(2) 15.0 %   11.9 %   +310 bps
Leverage Ratio(3) 1.9 x   2.4 x   -0.5 x

______________________
(1)   Includes U.S. purchases of $89.5 million and $124.8 million, and Europe purchases of $53.2 million and $23.1 million in Q2 2021 and Q2 2020, respectively.
(2)   See Supplemental Financial Information for calculation of LTM Pre-Tax ROIC (Return on Invested Capital).
(3)   Leverage ratio is the ratio of Net Debt to (Adjusted EBITDA + collections applied to principal balance), the industry standard for leverage.

Financial Highlights for the First Half of 2021:

  Six Months Ended June 30,
(in thousands, except percentages and earnings per share) 2021   2020   Change
Collections $ 1,218,888     $ 1,035,494     18 %
Revenues $ 844,572     $ 715,114     18 %
Portfolio purchases(1) $ 312,906     $ 362,052     (14 )%
Operating expenses $ 501,971     $ 448,220     12 %
GAAP net income attributable to Encore $ 191,133     $ 119,878     59 %
GAAP earnings per share $ 6.04     $ 3.79     59 %

______________________
(1)   Includes U.S. purchases of $181.9 million and $310.1 million, and Europe purchases of $131.0 million and $52.0 million in six months ended June 30, 2021 and 2020, respectively.

Conference Call and Webcast

Encore will host a conference call and slide presentation today, August 4, 2021, at 2:30 p.m. Pacific / 5:30 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, 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 4169064. 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. Adjusted EBITDA, adjusted operating expenses and Adjusted Income from Operations (used in Pre-Tax ROIC) 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. 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 ThomasEncore 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)
       
  June 30,
2021
  December 31,
2020
Assets      
Cash and cash equivalents $ 198,516     $ 189,184  
Investment in receivable portfolios, net 3,154,001     3,291,918  
Property and equipment, net 120,090     127,297  
Other assets 292,078     349,162  
Goodwill 915,067     906,962  
Total assets $ 4,679,752     $ 4,864,523  
Liabilities and Equity      
Liabilities:      
Accounts payable and accrued liabilities $ 190,707     $ 215,920  
Borrowings 2,999,296     3,281,634  
Other liabilities 135,399     146,893  
Total liabilities 3,325,402     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, 30,413 and 31,345 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 304     313  
Additional paid-in capital 143,827     230,440  
Accumulated earnings 1,269,259     1,055,668  
Accumulated other comprehensive loss (59,040 )   (68,813 )
Total Encore Capital Group, Inc. stockholders’ equity 1,354,350     1,217,608  
Noncontrolling interest     2,468  
Total equity 1,354,350     1,220,076  
Total liabilities and equity $ 4,679,752     $ 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.

  June 30,
2021
  December 31,
2020
Assets      
Cash and cash equivalents $ 678     $ 2,223  
Investment in receivable portfolios, net 516,048     553,621  
Other assets 4,404     5,127  
Liabilities      
Borrowings 484,078     478,131  
Other liabilities 11     37  
           

 

 
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2021   2020   2021   2020
Revenues              
Revenue from receivable portfolios $ 328,150     $ 335,287     $ 666,168     $ 692,652  
Changes in expected current and future recoveries 66,178     66,007     110,715     (32,654 )
Servicing revenue 32,064     23,950     64,580     52,630  
Other revenues 1,343     789     3,109     2,486  
Total revenues 427,735     426,033     844,572     715,114  
Operating expenses              
Salaries and employee benefits 97,774     90,867     194,230     183,965  
Cost of legal collections 66,900     37,356     134,042     103,635  
General and administrative expenses 34,823     28,618     66,971     60,495  
Other operating expenses 28,228     28,275     56,669     55,439  
Collection agency commissions 13,677     10,683     26,501     23,859  
Depreciation and amortization 12,046     10,542     23,558     20,827  
Total operating expenses 253,448     206,341     501,971     448,220  
Income from operations 174,287     219,692     342,601     266,894  
Other (expense) income              
Interest expense (44,159 )   (50,327 )   (90,685 )   (104,989 )
Loss on extinguishment of debt (9,300 )       (9,300 )    
Other income (expense) 566     (3,011 )   511     (1,572 )
Total other expense (52,893 )   (53,338 )   (99,474 )   (106,561 )
Income before income taxes 121,394     166,354     243,127     160,333  
Provision for income taxes (24,607 )   (35,570 )   (51,575 )   (40,128 )
Net income 96,787     130,784     191,552     120,205  
Net income attributable to noncontrolling interest (284 )   (452 )   (419 )   (327 )
Net income attributable to Encore Capital Group, Inc. stockholders $ 96,503     $ 130,332     $ 191,133     $ 119,878  
               
Earnings per share attributable to Encore Capital Group, Inc.:              
Basic $ 3.12     $ 4.15     $ 6.13     $ 3.82  
Diluted $ 3.07     $ 4.13     $ 6.04     $ 3.79  
               
Weighted average shares outstanding:              
Basic 30,909     31,413     31,187     31,361  
Diluted 31,415     31,560     31,622     31,628  
                       

 

 
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
   
  Six Months Ended June 30,
  2021   2020
Operating activities:      
Net income $ 191,552     $ 120,205  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 23,558     20,827  
Loss on extinguishment of debt 9,300      
Other non-cash interest expense, net 9,403     12,127  
Stock-based compensation expense 9,056     9,305  
Deferred income taxes (5,097 )   (17,101 )
Changes in expected current and future recoveries (110,715 )   32,654  
Other, net 12,006     4,923  
Changes in operating assets and liabilities      
Other assets 11,474     11,917  
Prepaid income tax and income taxes payable 31,374     41,748  
Accounts payable, accrued liabilities and other liabilities (32,946 )   (26,890 )
Net cash provided by operating activities 148,965     209,715  
Investing activities:      
Purchases of receivable portfolios, net of put-backs (306,549 )   (350,658 )
Collections applied to investment in receivable portfolios, net 552,720     342,842  
Purchases of property and equipment (10,351 )   (13,028 )
Other, net 4,877     9,831  
Net cash provided by (used in) investing activities 240,697     (11,013 )
Financing activities:      
Payment of loan and debt refinancing costs (10,617 )    
Proceeds from credit facilities 358,063     279,070  
Repayment of credit facilities (511,200 )   (315,622 )
Proceeds from senior secured notes 353,747      
Repayment of senior secured notes (339,585 )   (32,500 )
Repayment of other debt     (14,882 )
Repayment of convertible senior notes (161,000 )    
Repurchase of common stock (47,421 )    
Other, net (11,634 )   (3,634 )
Net cash used in financing activities (369,647 )   (87,568 )
Net increase in cash and cash equivalents 20,015     111,134  
Effect of exchange rate changes on cash and cash equivalents (10,683 )   (9,669 )
Cash and cash equivalents, beginning of period 189,184     192,335  
Cash and cash equivalents, end of period $ 198,516     $ 293,800  
       
Supplemental disclosure of cash information:      
Cash paid for interest $ 69,152     $ 88,363  
Cash paid for taxes, net of refunds 24,273     16,292  
           

 

 
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
June 30,
  Six Months Ended
June 30,
  2021   2020   2021   2020
GAAP net income, as reported $ 96,787     $ 130,784     $ 191,552     $ 120,205  
Adjustments:              
Interest expense 44,159     50,327     90,685     104,989  
Interest income (426 )   (559 )   (900 )   (1,559 )
Provision for income taxes 24,607     35,570     51,575     40,128  
Depreciation and amortization 12,046     10,542     23,558     20,827  
Stock-based compensation expense 5,651     4,778     9,056     9,305  
Acquisition, integration and restructuring related expenses(1)     4,776         4,963  
Loss on extinguishment of debt 9,300         9,300      
Adjusted EBITDA $ 192,124     $ 236,218     $ 374,826     $ 298,858  
Collections applied to principal balance(2) $ 224,074     $ 106,921     $ 453,584     $ 375,496  

________________________
(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 the sum of (b) revenue from receivable portfolios and (c) changes in expected recoveries. 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.

  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2021   2020   2021   2020
GAAP total operating expenses, as reported $ 253,448     $ 206,341     $ 501,971     $ 448,220  
Adjustments:              
Operating expenses related to non-portfolio purchasing and recovery business(1) (43,267 )   (42,386 )   (85,920 )   (83,875 )
Stock-based compensation expense (5,651 )   (4,778 )   (9,056 )   (9,305 )
Acquisition, integration and restructuring related expenses(2)     32         (155 )
Adjusted operating expenses related to portfolio purchasing and recovery business $ 204,530     $ 159,209     $ 406,995     $ 354,885  

________________________
(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 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 June 30,
(in thousands, except percentages) 2021   2020
Numerator      
Income from operations $ 609,269     $ 488,449  
Adjustments:(1)      
CFPB settlement fees 15,009      
Acquisition, integration and restructuring related expenses (1 )   4,678  
Amortization of certain acquired intangible assets(2) 7,326     6,737  
Goodwill impairment     10,718  
Net gain on fair value adjustments to contingent considerations     (101 )
Adjusted income from operations $ 631,603     $ 510,481  
       
Denominator      
Average Net Debt $ 3,016,599     $ 3,301,314  
Average equity 1,198,369     972,672  
Total average invested capital $ 4,214,968     $ 4,273,986  
       
Pre-tax ROIC   15.0 %     11.9 %

________________________
(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) June 30,
2021
  June 30,
2020
  June 30,
2019
GAAP Borrowings $ 2,999,296     $ 3,353,730     $ 3,529,717  
Debt issuance costs and debt discounts 64,468     63,017     73,248  
Cash & cash equivalents (198,516 )   (293,800 )   (168,565 )
Client cash(1) 23,907     21,097     24,183  
Net Debt $ 2,889,155     $ 3,144,044     $ 3,458,583  

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

 

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Source: Encore Capital Group Inc