0001084961false00010849612023-11-012023-11-01

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
November 1, 2023
Date of report (Date of earliest event reported)
______________________
ENCORE CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
000-26489
48-1090909
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)
350 Camino de la Reina, Suite 100
San Diego, California 92108
(Address of principal executive offices)(Zip Code)
(877) 445-4581
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report.)
_____________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par Value Per ShareECPGThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company  ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐



Item 2.02.    Results of Operations and Financial Condition.
On November 1, 2023, Encore Capital Group, Inc. (“Encore”) issued a press release announcing its financial results for the quarter ended September 30, 2023. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.
The information in Item 2.02 of this Current Report on Form 8-K, including the information contained in Exhibit 99.1, is being furnished to the Securities and Exchange Commission pursuant to Item 2.02, and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by a specific reference in such filing.
Item 9.01.    Financial Statements and Exhibits.
Exhibit Number
Description
Press release dated November 1, 2023
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)




SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ENCORE CAPITAL GROUP, INC.

Date:
November 1, 2023
/s/ Jonathan C. Clark
Jonathan C. Clark
Executive Vice President, Chief Financial Officer and Treasurer




EXHIBIT INDEX
Exhibit NumberDescription
Press release dated November 1, 2023
104Cover Page Interactive Data File (embedded within the Inline XBRL document)




ecpglogoa.jpg
Exhibit 99.1


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, November 1, 2023 -- 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.
______________________
(1)Purchase price multiple is calculated as (cumulative collections + ERC) ÷ purchase price.

Encore Capital Group, Inc.
Page 2


Financial Highlights for the Third Quarter of 2023:
Three Months Ended September 30,
(in thousands, except percentages and earnings per share)20232022Change
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)%
______________________
(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.

Encore Capital Group, Inc.
Page 3


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.

Encore Capital Group, Inc.
Page 4


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
bruce.thomas@encorecapital.com

SOURCE: Encore Capital Group, Inc.



FINANCIAL TABLES FOLLOW


Encore Capital Group, Inc.
Page 5


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, net3,320,544 3,088,261 
Property and equipment, net102,208 113,900 
Other assets366,815 341,073 
Goodwill826,010 821,214 
Total assets
$4,760,288 $4,508,360 
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities$190,646 $198,217 
Borrowings3,114,175 2,898,821 
Other liabilities256,684 231,695 
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 capital8,106 — 
Accumulated earnings1,319,933 1,278,210 
Accumulated other comprehensive loss(129,491)(98,816)
Total stockholders’ equity1,198,783 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, net445,653 431,350 
Other assets1,107 3,627 
Liabilities
Accounts payable and accrued liabilities116 150 
Borrowings408,680 423,522 
Other liabilities18 105 

Encore Capital Group, Inc.
Page 6


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,
2023202220232022
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 revenue285,620 284,139 869,491 1,086,899 
Servicing revenue19,893 21,992 63,486 71,926 
Other revenues4,106 1,621 12,316 5,526 
Total revenues309,619 307,752 945,293 1,164,351 
Operating expenses
Salaries and employee benefits95,067 89,241 294,772 285,077 
Cost of legal collections56,274 52,891 167,525 163,756 
General and administrative expenses35,559 37,274 108,053 105,775 
Other operating expenses27,959 28,286 81,864 82,718 
Collection agency commissions8,046 7,884 26,583 27,412 
Depreciation and amortization11,196 11,659 32,768 35,134 
Total operating expenses234,101 227,235 711,565 699,872 
Income from operations75,518 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 taxes30,063 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:
Basic23,712 23,958 23,644 24,344 
Diluted24,382 25,919 24,535 26,601 

Encore Capital Group, Inc.
Page 7


ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
Nine Months Ended September 30,
20232022
Operating activities:
Net income$64,270 $267,682 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization32,768 35,134 
Other non-cash interest expense, net12,526 11,984 
Stock-based compensation expense11,017 12,231 
Deferred income taxes952 2,127 
Changes in recoveries30,054 (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 activities116,211 154,876 
Investing activities:
Purchases of receivable portfolios, net of put-backs(772,101)(569,032)
Collections applied to investment in receivable portfolios504,672 567,775 
Purchases of asset held for sale(24,645)(38,604)
Purchases of property and equipment(16,765)(21,068)
Other, net38,113 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 facilities630,079 637,342 
Repayment of credit facilities(446,724)(432,424)
Repayment of senior secured notes(29,310)(29,310)
Proceeds from issuance of convertible senior notes230,000 — 
Repayment of convertible and exchangeable senior notes(212,480)(221,153)
Proceeds from convertible hedge instruments, net12,421 — 
Repurchase and retirement of common stock— (76,753)
Other, net(16,890)(16,735)
Net cash provided by (used in) financing activities158,872 (140,692)
Net increase (decrease) in cash and cash equivalents4,357 (26,488)
Effect of exchange rate changes on cash and cash equivalents(3,558)(16,122)
Cash and cash equivalents, beginning of period143,912 189,645 
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.
Page 8


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)2023202220232022
GAAP net income, as reported$19,339 $31,494 $64,270 $267,682 
Adjustments:
Interest expense50,558 39,308 147,376 110,995 
Interest income(1,315)(749)(3,382)(1,774)
Provision for income taxes10,724 10,920 27,162 89,194 
Depreciation and amortization11,196 11,659 32,768 35,134 
Stock-based compensation expense3,092 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 
________________________
(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.


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