Encore Capital Group, Inc. (NASDAQ: ECPG), an international
specialty finance company, today reported consolidated financial
results for the first quarter ended March 31, 2023.
“Encore’s performance in the first quarter reflected normalized
consumer behavior in each of our key markets,” said Ashish Masih,
President and Chief Executive Officer. “As such, collections have
returned to pre-pandemic levels for our MCM business in the U.S.
and have stabilized for our Cabot business in Europe. At the same
time, as anticipated, the growth of portfolio supply in the U.S. is
accelerating with lending and charge-off rates steadily growing. As
a result, MCM portfolio purchases in the U.S. in the first quarter
were a record $213 million, more than double the amount we
purchased in Q1 a year ago.”
“In Europe, in the face of near double-digit inflation, and
consistent with our message from a quarter ago, we took actions in
the first quarter to manage our cost base, including headcount
reductions in support functions, that resulted in a $6 million
pre-tax charge.”
“As a result of the disciplined execution of our strategy,
Encore is well-positioned with the operational capability and
balance sheet to capitalize on the growing portfolio purchasing
opportunities in the market. Looking forward, we expect portfolio
purchases in the U.S. in the second quarter to be at a similar
level to those in Q1. We're also as committed as ever to the
critical role we play in the consumer credit ecosystem and to help
consumers regain their financial freedom, especially in this rising
charge-off rate environment," said Masih.
Financial Highlights for the First
Quarter of
2023:
|
Three Months Ended March 31, |
(in thousands, except percentages
and earnings per share) |
|
2023 |
|
|
2022 |
|
Change |
Collections |
$ |
462,356 |
|
$ |
519,414 |
|
(11) % |
Revenues |
$ |
312,630 |
|
$ |
499,682 |
|
(37) % |
Portfolio purchases(1) |
$ |
276,431 |
|
$ |
169,505 |
|
63 |
% |
Estimated Remaining Collections
(ERC) |
$ |
7,789,980 |
|
$ |
7,799,940 |
|
0 |
% |
Operating expenses |
$ |
242,492 |
|
$ |
234,668 |
|
3 |
% |
GAAP net income |
$ |
18,626 |
|
$ |
175,749 |
|
(89) % |
GAAP earnings per share |
$ |
0.75 |
|
$ |
6.40 |
|
(88) % |
______________________
(1) Includes U.S. purchases of $213.5 million
and $94.3 million, and Europe purchases of $63.0 million and $75.2
million in Q1 2023 and Q1 2022, respectively.
Conference Call and Webcast
Encore will host a conference call and slide presentation today,
May 3, 2023, at 2:00 p.m. Pacific / 5:00 p.m. Eastern time, to
present and discuss first 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. 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.
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 ThomasEncore Capital Group, Inc.Vice President, Global
Investor Relations(858) 309-6442bruce.thomas@encorecapital.com
SOURCE: Encore Capital Group, Inc.
FINANCIAL TABLES FOLLOW
ENCORE CAPITAL GROUP,
INC.Condensed Consolidated Statements of Financial
Condition (In Thousands, Except Par Value
Amounts)(Unaudited)
|
March 31,2023 |
|
December 31,2022 |
Assets |
|
|
|
Cash and cash equivalents |
$ |
158,774 |
|
|
$ |
143,912 |
|
Investment in receivable
portfolios, net |
|
3,214,792 |
|
|
|
3,088,261 |
|
Property and equipment, net |
|
110,184 |
|
|
|
113,900 |
|
Other assets |
|
368,041 |
|
|
|
341,073 |
|
Goodwill |
|
834,174 |
|
|
|
821,214 |
|
Total assets |
$ |
4,685,965 |
|
|
$ |
4,508,360 |
|
Liabilities and Equity |
|
|
|
Liabilities: |
|
|
|
Accounts payable and accrued liabilities |
$ |
179,971 |
|
|
$ |
198,217 |
|
Borrowings |
|
3,081,786 |
|
|
|
2,898,821 |
|
Other liabilities |
|
240,052 |
|
|
|
231,695 |
|
Total liabilities |
|
3,501,809 |
|
|
|
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, 23,482 and
23,323 shares issued and outstanding as of March 31, 2023 and
December 31, 2022, respectively |
|
235 |
|
|
|
233 |
|
Additional paid-in capital |
|
— |
|
|
|
— |
|
Accumulated earnings |
|
1,274,289 |
|
|
|
1,278,210 |
|
Accumulated other comprehensive loss |
|
(90,368 |
) |
|
|
(98,816 |
) |
Total stockholders’ equity |
|
1,184,156 |
|
|
|
1,179,627 |
|
Total liabilities and stockholders’ equity |
$ |
4,685,965 |
|
|
$ |
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.
|
March 31,2023 |
|
December 31,2022 |
Assets |
|
|
|
Cash and cash equivalents |
$ |
1,642 |
|
$ |
1,344 |
Investment in receivable
portfolios, net |
|
459,974 |
|
|
431,350 |
Other assets |
|
3,813 |
|
|
3,627 |
Liabilities |
|
|
|
Accounts payable and accrued
liabilities |
|
496 |
|
|
150 |
Borrowings |
|
431,919 |
|
|
423,522 |
Other liabilities |
|
105 |
|
|
105 |
ENCORE CAPITAL GROUP,
INC.Condensed Consolidated Statements of
Income(In Thousands, Except Per Share
Amounts)(Unaudited)
|
Three Months EndedMarch 31, |
|
|
2023 |
|
|
|
2022 |
|
Revenues |
|
|
|
Revenue from receivable portfolios |
$ |
295,674 |
|
|
$ |
304,105 |
|
Changes in recoveries |
|
(9,501 |
) |
|
|
167,223 |
|
Total debt purchasing revenue |
|
286,173 |
|
|
|
471,328 |
|
Servicing revenue |
|
22,585 |
|
|
|
26,146 |
|
Other revenues |
|
3,872 |
|
|
|
2,208 |
|
Total revenues |
|
312,630 |
|
|
|
499,682 |
|
Operating expenses |
|
|
|
Salaries and employee benefits |
|
103,850 |
|
|
|
96,956 |
|
Cost of legal collections |
|
54,101 |
|
|
|
55,717 |
|
General and administrative expenses |
|
37,965 |
|
|
|
33,534 |
|
Other operating expenses |
|
27,556 |
|
|
|
27,027 |
|
Collection agency commissions |
|
8,150 |
|
|
|
9,605 |
|
Depreciation and amortization |
|
10,870 |
|
|
|
11,829 |
|
Total operating expenses |
|
242,492 |
|
|
|
234,668 |
|
Income from operations |
|
70,138 |
|
|
|
265,014 |
|
Other expense |
|
|
|
Interest expense |
|
(46,835 |
) |
|
|
(34,633 |
) |
Other income, net |
|
1,732 |
|
|
|
392 |
|
Total other expense |
|
(45,103 |
) |
|
|
(34,241 |
) |
Income before income taxes |
|
25,035 |
|
|
|
230,773 |
|
Provision for income taxes |
|
(6,409 |
) |
|
|
(55,024 |
) |
Net income |
$ |
18,626 |
|
|
$ |
175,749 |
|
|
|
|
|
Earnings per
share: |
|
|
|
Basic |
$ |
0.79 |
|
|
$ |
7.11 |
|
Diluted |
$ |
0.75 |
|
|
$ |
6.40 |
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
Basic |
|
23,548 |
|
|
|
24,722 |
|
Diluted |
|
24,942 |
|
|
|
27,482 |
|
ENCORE CAPITAL GROUP,
INC.Condensed Consolidated Statements of Cash
Flows(Unaudited, In Thousands)
|
Three Months Ended March 31, |
|
|
2023 |
|
|
|
2022 |
|
Operating
activities: |
|
|
|
Net income |
$ |
18,626 |
|
|
$ |
175,749 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
Depreciation and amortization |
|
10,870 |
|
|
|
11,829 |
|
Other non-cash interest expense, net |
|
4,594 |
|
|
|
4,196 |
|
Stock-based compensation expense |
|
4,052 |
|
|
|
3,921 |
|
Deferred income taxes |
|
1,369 |
|
|
|
2,806 |
|
Changes in recoveries |
|
9,501 |
|
|
|
(167,223 |
) |
Other, net |
|
(1,843 |
) |
|
|
4,787 |
|
Changes in operating assets and
liabilities |
|
|
|
Other assets |
|
(3,139 |
) |
|
|
27,299 |
|
Accounts payable, accrued liabilities and other liabilities |
|
(8,117 |
) |
|
|
(8,834 |
) |
Net cash provided by operating activities |
|
35,913 |
|
|
|
54,530 |
|
Investing
activities: |
|
|
|
Purchases of receivable portfolios, net of put-backs |
|
(274,625 |
) |
|
|
(166,298 |
) |
Collections applied to investment in receivable portfolios |
|
166,682 |
|
|
|
215,309 |
|
Purchases of asset held for sale |
|
(22,596 |
) |
|
|
(12,388 |
) |
Purchases of property and equipment |
|
(4,885 |
) |
|
|
(7,079 |
) |
Other, net |
|
4,709 |
|
|
|
7,684 |
|
Net cash (used in) provided by investing activities |
|
(130,715 |
) |
|
|
37,228 |
|
Financing
activities: |
|
|
|
Payment of loan and debt refinancing costs |
|
(5,850 |
) |
|
|
(1,455 |
) |
Proceeds from credit facilities |
|
229,128 |
|
|
|
328,273 |
|
Repayment of credit facilities |
|
(140,043 |
) |
|
|
(180,614 |
) |
Repayment of senior secured notes |
|
(9,770 |
) |
|
|
(9,770 |
) |
Proceeds from issuance of convertible senior notes |
|
230,000 |
|
|
|
— |
|
Repayment of convertible and exchangeable senior notes |
|
(192,457 |
) |
|
|
(221,152 |
) |
Proceeds from convertible hedge instruments, net |
|
10,050 |
|
|
|
— |
|
Repurchase and retirement of common stock |
|
— |
|
|
|
(25,692 |
) |
Other, net |
|
(10,684 |
) |
|
|
(7,606 |
) |
Net cash provided by (used in) financing activities |
|
110,374 |
|
|
|
(118,016 |
) |
Net increase (decrease) in cash
and cash equivalents |
|
15,572 |
|
|
|
(26,258 |
) |
Effect of exchange rate changes
on cash and cash equivalents |
|
(710 |
) |
|
|
(3,170 |
) |
Cash and cash equivalents,
beginning of period |
|
143,912 |
|
|
|
189,645 |
|
Cash and cash equivalents, end of
period |
$ |
158,774 |
|
|
$ |
160,217 |
|
|
|
|
|
Supplemental disclosure of cash
information: |
|
|
|
Cash paid for interest |
$ |
38,072 |
|
|
$ |
31,771 |
|
Cash paid for taxes, net of refunds |
$ |
908 |
|
|
$ |
949 |
|
ENCORE CAPITAL GROUP,
INC.Supplemental Financial InformationReconciliation of
Non-GAAP Metrics
Adjusted EBITDA
|
Three Months EndedMarch 31, |
(in thousands, unaudited) |
|
2023 |
|
|
|
2022 |
|
GAAP net income, as reported |
$ |
18,626 |
|
|
$ |
175,749 |
|
Adjustments: |
|
|
|
Interest expense |
|
46,835 |
|
|
|
34,633 |
|
Interest income |
|
(944 |
) |
|
|
(437 |
) |
Provision for income taxes |
|
6,409 |
|
|
|
55,024 |
|
Depreciation and amortization |
|
10,870 |
|
|
|
11,829 |
|
Stock-based compensation expense |
|
4,052 |
|
|
|
3,921 |
|
Acquisition, integration and restructuring related expenses(1) |
|
5,526 |
|
|
|
679 |
|
Adjusted EBITDA |
$ |
91,374 |
|
|
$ |
281,398 |
|
Collections applied to principal
balance(2) |
$ |
182,981 |
|
|
$ |
53,567 |
|
________________________
(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. For the three months ended March 31, 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.(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 March 31,
2023.
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