Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________________________________________________________________________________ FORM 10-Q (Exact name of registrant as specified in its charter) Delaware 48-1090909 (State or other jurisdiction of incorporation or organization) COMMISSION FILE NUMBER: 000-26489 ENCORE CAPITAL GROUP, INC. ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31 ...

Encore Capital Group, Inc. (NASDAQ:ECPG) Q4 2022 Earnings Conference Call February 22, 2023 5:00 PM ET Company Participants Bruce Thomas - Vice President, Global Investor Relations Ashish Masih - President and Chief Executive Officer Jonathan Clark - Executive Vice President and Chief Financial Officer Ryan Bell - President, Midland Credit Management Craig Buick - Chief Executive Officer, Cabot Credit Management Group Conference Call Participants Mike Grondahl - Northland Capital Markets Mark Hughes - Truis ...

PART I [Business](index=3&type=section&id=Item%201%E2%80%94Business) Encore Capital Group is an international specialty finance company focused on debt recovery, primarily purchasing and managing defaulted consumer receivables - Encore Capital Group, Inc. is an international specialty finance company providing debt recovery solutions and related services, primarily purchasing and managing defaulted consumer receivables[11](index=11&type=chunk) - The company's primary operations are Midland Credit Management, Inc. (MCM) in the United States and Cabot Credit Management Limited (CCM) in Europe and the United Kingdom, both market leaders in their respective regions[12](index=12&type=chunk) - Long-term growth strategy focuses on investing in core portfolio purchasing and recovery in the U.S. and U.K., and strengthening business in the rest of Europe, with Latin America and Asia-Pacific (LAAP) operations not yet significant[14](index=14&type=chunk) - Key competitive advantages include **analytic strength** (proprietary models, 20+ years of data, digital collection strategies), **consumer intelligence and principled intent**, **regulatory expertise**, **strong capital stewardship**, and **operational scale and cost efficiency**[19](index=19&type=chunk)[22](index=22&type=chunk)[25](index=25&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - Strategic priorities include market focus on U.S. and U.K. for high risk-adjusted returns, enhancing competitive advantages through innovation, and strengthening the balance sheet by increasing cash flow and potentially reducing debt or repurchasing shares[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk) [Risk Factors](index=15&type=section&id=Item%201A%E2%80%94Risk%20Factors) The company faces various risks, including those related to its business and industry, regulatory and litigation challenges, financial indebtedness, and general operational factors - Economic conditions, including significant inflation, directly affect consumer ability to repay obligations, potentially reducing collections and portfolio value, and increasing regulatory scrutiny and litigation[108](index=108&type=chunk) - The ability to purchase receivables profitably is challenged by fluctuating prices, supply, and intense competition, which could limit growth or profitability[109](index=109&type=chunk)[115](index=115&type=chunk) - The business is subject to extensive and increasing federal, state, and local laws and regulations in the U.S. (e.g., FDCPA, CFPB, FCRA) and Europe (e.g., FCA, GDPR), with non-compliance potentially leading to fines, penalties, and operational restrictions[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk)[81](index=81&type=chunk)[88](index=88&type=chunk)[144](index=144&type=chunk) - Significant indebtedness (approximately **$2.9 billion** as of December 31, 2022) increases vulnerability to economic downturns, requires substantial cash flow for payments, and limits financial flexibility[159](index=159&type=chunk) - The company relies on sophisticated computer and telecommunications systems; failure or inability to adapt to technological advances could disrupt operations and negatively impact business[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) - International operations expose the company to additional risks, including compliance with diverse international laws, currency exchange rate fluctuations, and social/political instability[137](index=137&type=chunk)[143](index=143&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=Item%201B%E2%80%94Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[185](index=185&type=chunk) [Properties](index=25&type=section&id=Item%202%E2%80%94Properties) The company leases office space for its corporate headquarters and call centers across multiple countries, which are considered well-maintained and sufficient for current operational needs - The company leases office space for its corporate headquarters in San Diego, California[187](index=187&type=chunk) - Call centers, internal legal, and consumer support services are operated from leased offices in the United States, Costa Rica, India, the United Kingdom, and other European countries[187](index=187&type=chunk) - Current leased facilities are believed to be well-maintained, in good operating condition, and sufficient for operational needs, with a policy for continuous improvement[187](index=187&type=chunk) [Legal Proceedings](index=25&type=section&id=Item%203%E2%80%94Legal%20Proceedings) The company is routinely involved in various disputes, legal actions, and regulatory investigations, with management believing any resulting liability will not materially adversely affect its financial position - The company is involved in disputes, legal actions, regulatory investigations, inquiries, and other actions in the ordinary course of business[189](index=189&type=chunk) - Management believes that any liability from these legal matters will not have a material adverse effect on the business, financial position, or results of operations[189](index=189&type=chunk) [Mine Safety Disclosures](index=25&type=section&id=Item%204%E2%80%94Mine%20Safety%20Disclosures) The company is not subject to the Mine Safety and Health Act of 1977 and therefore has no disclosures regarding mine safety - Not applicable[192](index=192&type=chunk) PART II [Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=26&type=section&id=Item%205%E2%80%94Market%20for%20the%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Encore Capital Group's common stock trades on NASDAQ under 'ECPG', with **23,322,669 shares outstanding** as of February 16, 2023, and an active **$300.0 million** share repurchase program - Common stock is traded on the NASDAQ Global Select Market under the symbol 'ECPG'[195](index=195&type=chunk) - As of February 16, 2023, there were **23,322,669 shares** of Common Stock outstanding[4](index=4&type=chunk) - The company has never declared or paid dividends on its common stock[199](index=199&type=chunk) - The Board of Directors approved a **$300.0 million** share repurchase program, increased in May 2021[201](index=201&type=chunk) Share Repurchases (Q4 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value That May Yet Be Purchased Under the Publicly Announced Plans or Programs | |:---|:---|:---|:---|:---| | October 1, 2022 to October 31, 2022 | 185,029 | $47.33 | 185,029 | $93,422,300 | | November 1, 2022 to November 30, 2022 | 31,298 | $47.80 | 31,298 | $91,926,255 | | December 1, 2022 to December 31, 2022 | — | | — | $91,926,255 | | **Total** | **216,327** | **$47.40** | **216,327** | | [Reserved](index=28&type=section&id=Item%206%E2%80%94%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%207%E2%80%94Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Encore Capital Group's financial condition and results for FY2022, highlighting decreased revenues and net income due to post-pandemic normalization, lower purchasing volumes, and foreign currency impacts, while maintaining strong liquidity - During 2022, consumer behavior in the U.S. normalized, leading to a decrease in collections compared to the unusually high levels in 2021 driven by the COVID-19 pandemic[215](index=215&type=chunk)[232](index=232&type=chunk) - Higher interest rates, elevated inflation, agent staffing challenges, and large foreign exchange rate fluctuations impacted operations in 2022[216](index=216&type=chunk) - Portfolio supply in the U.S. began to increase, and pricing started to soften in Q4 2022, while pricing in the U.K. and Europe remained competitive[215](index=215&type=chunk)[223](index=223&type=chunk)[227](index=227&type=chunk) Key Financial Highlights (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | $ Change | % Change | |:---|:---|:---|:---|:---| | Total revenues | $1,398,347 | $1,614,499 | $(216,152) | (13.4)% | | Debt purchasing revenue | $1,295,506 | $1,486,866 | $(191,360) | (12.9)% | | Servicing revenue | $94,922 | $120,778 | $(25,856) | (21.4)% | | Total operating expenses | $936,173 | $981,227 | $(45,054) | (4.6)% | | Income from operations | $462,174 | $633,272 | $(171,098) | (27.0)% | | Net income attributable to Encore Capital Group, Inc. stockholders | $194,564 | $350,782 | $(156,218) | (44.5)% | | Basic EPS | $8.06 | $11.64 | $(3.58) | (30.8)% | | Diluted EPS | $7.46 | $11.26 | $(3.80) | (33.7)% | Purchases of Receivable Portfolios by Geographic Location (in thousands) | Geographic Location | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | MCM (United States) | $556,000 | $408,741 | $542,973 | | Cabot (Europe) | $244,507 | $255,788 | $116,899 | | **Total purchases** | **$800,507** | **$664,529** | **$659,872** | Total Collections from Purchased Receivables by Geographic Location (in thousands) | Geographic Location | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | MCM (United States) | $1,354,932 | $1,641,698 | $1,528,942 | | Cabot (Europe) | $553,271 | $644,979 | $553,946 | | Other geographies | $3,334 | $20,682 | $28,960 | | **Total collections** | **$1,911,537** | **$2,307,359** | **$2,111,848** | - Net cash provided by operating activities decreased to **$210.7 million** in 2022 from **$303.1 million** in 2021, primarily due to changes in net income and expected recoveries[300](index=300&type=chunk) - Available capacity under the Global Senior Facility was **$478.3 million** as of December 31, 2022[304](index=304&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%207A%E2%80%94Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages market risks from foreign currency exchange rates and interest rates using derivative financial instruments, including cross-currency swaps and interest rate caps - The company is exposed to economic risks from foreign currency exchange rates (primarily British Pound, Euro, Indian Rupee) and interest rates[331](index=331&type=chunk)[332](index=332&type=chunk) - Derivative financial instruments, including foreign currency forward contracts, cross-currency swap agreements, and interest rate cap contracts, are used to manage these risks[332](index=332&type=chunk)[333](index=333&type=chunk)[335](index=335&type=chunk) - As of December 31, 2022, the company held four cross-currency swap agreements with a total notional amount of **€350.0 million** (approximately **$375.3 million**) to convert Euro-denominated borrowings to U.S. dollar debt[334](index=334&type=chunk) - As of December 31, 2022, the company held two interest rate cap contracts with a total notional amount of approximately **$852.5 million** to manage interest rate fluctuations on variable rate debt[335](index=335&type=chunk) - A hypothetical **50 basis points** increase or decrease in interest rates on unhedged variable rate debt would have a **$3.4 million** positive or negative impact on income before income taxes[336](index=336&type=chunk) [Financial Statements and Supplementary Data](index=52&type=section&id=Item%208%E2%80%94Financial%20Statements%20and%20Supplementary%20Data) This item refers to the consolidated financial statements, notes, and the independent auditor's report, which are included elsewhere in the Form 10-K - Consolidated financial statements, notes, and the Report of BDO USA, LLP are included in the Annual Report on Form 10-K[340](index=340&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=52&type=section&id=Item%209%E2%80%94Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in and disagreements with accountants on accounting and financial disclosure[341](index=341&type=chunk) [Controls and Procedures](index=52&type=section&id=Item%209A%E2%80%94Controls%20and%20Procedures) The company's disclosure controls were effective as of December 31, 2022, with a previously identified material weakness in internal control remediated, and an unqualified opinion from the independent auditor - Disclosure controls and procedures were effective as of December 31, 2022, at the reasonable assurance level[344](index=344&type=chunk) - A material weakness in internal control related to qualitative factors in estimates of future recoveries within the Midland Credit Management operating unit, reported in the 2021 10-K, was remediated during 2022[347](index=347&type=chunk)[349](index=349&type=chunk) - The independent registered public accounting firm issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[352](index=352&type=chunk) [Other Information](index=55&type=section&id=Item%209B%E2%80%94Other%20Information) The company reported no other information required to be disclosed in this item - No other information is reported[360](index=360&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspection](index=55&type=section&id=Item%209C%E2%80%94Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspection) The company reported no disclosures regarding foreign jurisdictions that prevent inspection - No disclosures regarding foreign jurisdictions that prevent inspection[361](index=361&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=56&type=section&id=Item%2010%E2%80%94Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[364](index=364&type=chunk) [Executive Compensation](index=56&type=section&id=Item%2011%E2%80%94Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[366](index=366&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=56&type=section&id=Item%2012%E2%80%94Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[367](index=367&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=56&type=section&id=Item%2013%E2%80%94Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[369](index=369&type=chunk) [Principal Accountant Fees and Services](index=56&type=section&id=Item%2014%E2%80%94Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[371](index=371&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=57&type=section&id=Item%2015%E2%80%94Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements and supplementary data, along with a comprehensive list of exhibits, including the independent auditor's report and various corporate documents - The section includes consolidated financial statements, notes, and the Report of Independent Registered Public Accounting Firm[374](index=374&type=chunk) - A detailed list of exhibits, including corporate governance documents, debt agreements, and compensation plans, is provided, indicating whether they are incorporated by reference or filed herewith[375](index=375&type=chunk)[376](index=376&type=chunk)[377](index=377&type=chunk)[379](index=379&type=chunk)[381](index=381&type=chunk) [Form 10-K Summary](index=62&type=section&id=Item%2016%E2%80%94Form%2010-K%20Summary) The company reported no summary for Form 10-K in this item - No Form 10-K Summary is provided[383](index=383&type=chunk) [SIGNATURES](index=63&type=section&id=SIGNATURES) [INDEX TO CONSOLIDATED FINANCIAL STATEMENTS](index=64&type=section&id=INDEX%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) [Report of Independent Registered Public Accounting Firm](index=65&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) [Opinion on the Consolidated Financial Statements](index=65&type=section&id=Opinion%20on%20the%20Consolidated%20Financial%20Statements) BDO USA, LLP issued an unqualified opinion on Encore Capital Group, Inc.'s consolidated financial statements for the period ended December 31, 2022, and on the effectiveness of internal control over financial reporting - BDO USA, LLP issued an unqualified opinion on the consolidated financial statements for the period ended December 31, 2022[391](index=391&type=chunk) - The financial statements present fairly the financial position, results of operations, and cash flows in conformity with GAAP[391](index=391&type=chunk) - An unqualified opinion was also issued on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[392](index=392&type=chunk) [Change in Accounting Principle](index=65&type=section&id=Change%20in%20Accounting%20Principle) Effective January 1, 2021, the company adopted ASU No. 2020-06, simplifying accounting for convertible instruments by treating them as a single liability and using the if-converted method for EPS calculations - Effective January 1, 2021, the company adopted ASU No. 2020-06, simplifying accounting for convertible instruments[393](index=393&type=chunk) - Convertible and exchangeable notes are now carried as a single liability, and the if-converted method is used for EPS calculations, resulting in lower interest expense[424](index=424&type=chunk) [Basis for Opinion](index=65&type=section&id=Basis%20for%20Opinion) The audit was conducted in accordance with PCAOB standards, involving assessment of material misstatement risks, testing of evidence, and evaluation of accounting principles and estimates - Audits were conducted in accordance with PCAOB standards to obtain reasonable assurance about whether consolidated financial statements are free of material misstatement[395](index=395&type=chunk) - Procedures included assessing risks, testing evidence, and evaluating accounting principles and management estimates[396](index=396&type=chunk) [Critical Audit Matters](index=65&type=section&id=Critical%20Audit%20Matters) Two critical audit matters were identified: the estimate of expected future recoveries on purchased credit deteriorated assets and the goodwill impairment assessment for MCM and Cabot - Two critical audit matters identified were the estimate of expected future recoveries on purchased credit deteriorated assets and the goodwill impairment assessment for MCM and Cabot reporting units[398](index=398&type=chunk)[401](index=401&type=chunk) - Both matters involved significant management judgments and assumptions, requiring challenging auditor judgment and specialized skill[400](index=400&type=chunk)[402](index=402&type=chunk) [Consolidated Statements of Financial Condition](index=67&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition) [Consolidated Statements of Financial Condition at December 31, 2022 and 2021](index=67&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition%20at%20December%2031%2C%202022%20and%202021) The consolidated statements of financial condition show a slight decrease in total assets and liabilities from 2021 to 2022, with investment in receivable portfolios increasing slightly while goodwill decreased Consolidated Statements of Financial Condition (in thousands) | Metric | December 31, 2022 | December 31, 2021 | |:---|:---|:---| | **Assets** | | | | Cash and cash equivalents | $143,912 | $189,645 | | Investment in receivable portfolios, net | $3,088,261 | $3,065,553 | | Property and equipment, net | $113,900 | $119,857 | | Other assets | $341,073 | $335,275 | | Goodwill | $821,214 | $897,795 | | **Total assets** | **$4,508,360** | **$4,608,125** | | **Liabilities** | | | | Accounts payable and accrued liabilities | $198,217 | $229,586 | | Borrowings | $2,898,821 | $2,997,331 | | Other liabilities | $231,695 | $195,947 | | **Total liabilities** | **$3,328,733** | **$3,422,864** | | **Equity** | | | | Total stockholders' equity | $1,179,627 | $1,185,261 | | **Total liabilities and stockholders' equity** | **$4,508,360** | **$4,608,125** | - Total assets decreased by approximately **$99.8 million** from **$4,608.1 million** in 2021 to **$4,508.4 million** in 2022[406](index=406&type=chunk) - Goodwill decreased by **$76.6 million**, primarily due to the effect of foreign currency translation[406](index=406&type=chunk)[560](index=560&type=chunk) [Consolidated Statements of Income](index=68&type=section&id=Consolidated%20Statements%20of%20Income) [Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020](index=68&type=section&id=Consolidated%20Statements%20of%20Income%20for%20the%20years%20ended%20December%2031%2C%202022%2C%202021%20and%202020) The consolidated statements of income show a decrease in total revenues and net income for 2022 compared to 2021, primarily driven by lower debt purchasing and servicing revenue, despite decreased operating expenses Consolidated Statements of Income (in thousands, except per share amounts) | Metric | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | Total revenues | $1,398,347 | $1,614,499 | $1,501,400 | | Total operating expenses | $936,173 | $981,227 | $967,838 | | Income from operations | $462,174 | $633,272 | $533,562 | | Interest expense | $(153,308) | $(169,647) | $(209,356) | | Provision for income taxes | $(116,425) | $(85,340) | $(70,374) | | Net income attributable to Encore Capital Group, Inc. stockholders | $194,564 | $350,782 | $211,848 | | Basic EPS | $8.06 | $11.64 | $6.74 | | Diluted EPS | $7.46 | $11.26 | $6.68 | - Total revenues decreased by **$216.2 million** (**13.4%**) from 2021 to 2022, primarily due to a **$191.4 million** decrease in debt purchasing revenue and a **$25.9 million** decrease in servicing revenue[409](index=409&type=chunk)[241](index=241&type=chunk) - Net income attributable to stockholders decreased by **$156.2 million** (**44.5%**) from **$350.8 million** in 2021 to **$194.6 million** in 2022[409](index=409&type=chunk) - Diluted EPS decreased by **$3.80** (**33.7%**) from **$11.26** in 2021 to **$7.46** in 2022[409](index=409&type=chunk) [Consolidated Statements of Comprehensive Income](index=69&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) [Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020](index=69&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20for%20the%20years%20ended%20December%2031%2C%202022%2C%202021%20and%202020) The consolidated statements of comprehensive income show a significant decrease in comprehensive income attributable to stockholders in 2022, primarily due to a substantial unrealized loss on foreign currency translation Consolidated Statements of Comprehensive Income (in thousands) | Metric | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | Net income | $194,564 | $351,201 | $212,524 | | Unrealized gain on derivative instruments, net of tax | $35,978 | $10,670 | $168 | | Unrealized (loss) gain on foreign currency translation, net of divestiture | $(81,246) | $4,595 | $19,792 | | Other comprehensive (loss) income, net of tax | $(45,268) | $15,265 | $19,960 | | Comprehensive income attributable to Encore Capital Group, Inc. stockholders | $149,296 | $366,047 | $231,801 | - Comprehensive income attributable to stockholders decreased by **$216.8 million** (**59.2%**) from **$366.0 million** in 2021 to **$149.3 million** in 2022[411](index=411&type=chunk) - A significant unrealized loss on foreign currency translation of **$81.2 million** (net of divestiture and tax) was recorded in 2022, compared to a gain of **$4.6 million** in 2021[411](index=411&type=chunk) [Consolidated Statements of Equity](index=70&type=section&id=Consolidated%20Statements%20of%20Equity) [Consolidated Statements of Equity for the years ended December 31, 2022, 2021 and 2020](index=70&type=section&id=Consolidated%20Statements%20of%20Equity%20for%20the%20years%20ended%20December%2031%2C%202022%2C%202021%20and%202020) Total stockholders' equity slightly decreased from 2021 to 2022, influenced by net income, other comprehensive loss, share repurchases, and the settlement of convertible senior notes Consolidated Statements of Equity (in thousands) | Metric | December 31, 2022 | December 31, 2021 | December 31, 2020 | |:---|:---|:---|:---| | Total stockholders' equity | $1,179,627 | $1,185,261 | $1,220,076 | | Net income | $194,564 | $350,782 | $211,848 | | Other comprehensive loss, net of tax | $(45,268) | $(4,639) | $17,321 | | Repurchase and retirement of common stock | $(87,006) | $(390,606) | — | | Settlement of convertible senior notes | $(71,152) | — | — | - Total stockholders' equity decreased by **$5.6 million** from **$1,185.3 million** in 2021 to **$1,179.6 million** in 2022[413](index=413&type=chunk) - Repurchase and retirement of common stock amounted to **$87.0 million** in 2022, following **$390.6 million** in 2021[413](index=413&type=chunk) - The settlement of convertible senior notes resulted in a **$71.2 million** reduction in accumulated earnings in 2022[413](index=413&type=chunk)[487](index=487&type=chunk) [Consolidated Statements of Cash Flows](index=71&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) [Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020](index=71&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20years%20ended%20December%2031%2C%202022%2C%202021%20and%202020) The consolidated statements of cash flows show a net decrease in cash and cash equivalents of **$27.0 million** in 2022, driven by lower operating cash flow and increased investing activities, partially offset by reduced financing activities Consolidated Statements of Cash Flows (in thousands) | Metric | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | Net cash provided by operating activities | $210,681 | $303,053 | $312,864 | | Net cash (used in) provided by investing activities | $(130,235) | $339,896 | $82,826 | | Net cash used in financing activities | $(107,445) | $(655,692) | $(403,200) | | Net decrease in cash and cash equivalents | $(26,999) | $(12,743) | $(7,510) | | Cash and cash equivalents, end of period | $143,912 | $189,645 | $189,184 | - Net cash provided by operating activities decreased by **$92.4 million** (**30.5%**) from **$303.1 million** in 2021 to **$210.7 million** in 2022[416](index=416&type=chunk) - Net cash used in investing activities was **$130.2 million** in 2022, a significant change from **$339.9 million** provided in 2021, primarily due to higher purchases of receivable portfolios and lower collections applied to investment[416](index=416&type=chunk)[301](index=301&type=chunk) - Net cash used in financing activities decreased by **$548.2 million** (**83.6%**) from **$655.7 million** in 2021 to **$107.4 million** in 2022, driven by lower repayments of credit facilities and senior secured notes, and reduced share repurchases[416](index=416&type=chunk)[302](index=302&type=chunk) [Notes to Consolidated Financial Statements](index=72&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies](index=72&type=section&id=Note%201%3A%20Ownership%2C%20Description%20of%20Business%2C%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes Encore Capital Group's debt recovery business, details its consolidation basis, foreign currency translation, and the adoption of ASU 2020-06, along with key accounting policies for various financial statement items - Encore Capital Group is an international specialty finance company providing debt recovery solutions, primarily through MCM (U.S.) and Cabot (Europe)[418](index=418&type=chunk)[419](index=419&type=chunk) - The company adopted ASU 2020-06 on January 1, 2021, using a modified-retrospective approach, simplifying accounting for convertible instruments by carrying them as a single liability and using the if-converted method for EPS, resulting in lower interest expense[422](index=422&type=chunk)[424](index=424&type=chunk) - Investment in receivable portfolios are accounted for as Purchased Credit Deteriorated (PCD) assets under CECL, recognized at face value with a negative allowance representing the present value of expected future recoveries[430](index=430&type=chunk) - Debt purchasing revenue includes accretion of the discount on the negative allowance and changes in expected future recoveries (recoveries above/below forecast and changes in expected future recoveries)[432](index=432&type=chunk) - The company is exposed to concentration of supply risk, as a significant portion of portfolio purchases may be concentrated with a few large sellers, and losing these sources could adversely affect business[447](index=447&type=chunk)[448](index=448&type=chunk) [Note 2: Fair Value Measurements](index=77&type=section&id=Note%202%3A%20Fair%20Value%20Measurements) This note defines fair value and its three-level hierarchy, detailing measurements for financial instruments like derivative contracts and contingent consideration, and providing fair value estimates for instruments not carried at fair value, such as receivable portfolios and borrowings - Fair value is defined as the exit price in an orderly transaction, categorized into a three-level hierarchy based on input observability[453](index=453&type=chunk)[454](index=454&type=chunk) Fair Value Measurements of Financial Instruments (in thousands) | Instrument | December 31, 2022 Fair Value | December 31, 2021 Fair Value | |:---|:---|:---| | **Assets** | | | | Interest rate cap contracts | $36,807 | $3,541 | | **Liabilities** | | | | Cross-currency swap agreements | $(36,918) | $(16,902) | | Contingent consideration | — | $(5,218) | - Contingent consideration liabilities from M&A activities were fully resolved as of December 31, 2022[456](index=456&type=chunk)[457](index=457&type=chunk) - The fair value of investment in receivable portfolios is measured using Level 3 inputs, discounting estimated future cash flows from proprietary forecasting models[463](index=463&type=chunk) - Fair value estimates for convertible notes, exchangeable notes, senior secured notes, and private placement notes primarily use Level 2 inputs, while credit facilities approximate fair value due to current market rates[464](index=464&type=chunk)[465](index=465&type=chunk) [Note 3: Derivatives and Hedging Instruments](index=79&type=section&id=Note%203%3A%20Derivatives%20and%20Hedging%20Instruments) The company uses derivative financial instruments, including interest rate cap contracts (**$852.5 million** notional) and cross-currency swap agreements (**€350.0 million** notional), to manage interest rate and foreign currency risks, with some qualifying for hedge accounting - The company uses derivative financial instruments to manage interest rate and foreign currency risks, with certain instruments qualifying for hedge accounting[466](index=466&type=chunk) Fair Value of Derivative Instruments (in thousands) | Instrument | December 31, 2022 Fair Value | December 31, 2021 Fair Value | |:---|:---|:---| | Interest rate cap contracts | $36,807 | $3,541 | | Cross-currency swap agreements | $(36,918) | $(16,902) | - As of December 31, 2022, the company held two interest rate cap contracts with a total notional amount of approximately **$852.5 million**, designated as cash flow hedges[469](index=469&type=chunk) - Four cross-currency swap agreements with a total notional amount of **€350.0 million** (approximately **$375.3 million**) were outstanding as of December 31, 2022, also designated as cash flow hedges[470](index=470&type=chunk) - Approximately **$20.3 million** of net derivative gain from interest rate caps and **$4.4 million** of net derivative loss from cross-currency swaps are expected to be reclassified from OCI into earnings within the next 12 months[469](index=469&type=chunk)[470](index=470&type=chunk) [Note 4: Investment in Receivable Portfolios, Net](index=81&type=section&id=Note%204%3A%20Investment%20in%20Receivable%20Portfolios%2C%20Net) This note details the company's **$3.088 billion** investment in receivable portfolios (PCD assets), explaining debt purchasing revenue components and noting that 2022 collections outperformed projections by **$29.3 million** Investment in Receivable Portfolios, Net (in thousands) | Metric | December 31, 2022 | December 31, 2021 | |:---|:---|:---| | Negative allowance for expected recoveries | $3,088,261 | $3,065,553 | | **Balance, end of period** | **$3,088,261** | **$3,065,553** | Changes in Investment in Receivable Portfolios, Net (in thousands) | Metric | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | Balance, beginning of period | $3,065,553 | $3,291,918 | $3,328,150 | | Negative allowance for expected recoveries - current period purchases | $800,507 | $664,529 | $659,872 | | Collections applied to investment in receivable portfolios, net | $(709,176) | $(1,019,629) | $(737,131) | | Changes in recoveries | $93,145 | $199,136 | $7,246 | | Foreign currency translation adjustments | $(143,495) | $(45,729) | $61,886 | | **Balance, end of period** | **$3,088,261** | **$3,065,553** | **$3,291,918** | - Collections during 2022 outperformed projected cash flows by approximately **$29.3 million**[476](index=476&type=chunk) - A net positive change in expected future period recoveries of approximately **$63.9 million** was recorded in 2022, based on reassessments of forecasts considering historical performance, consumer behavior, and macroeconomic environment[476](index=476&type=chunk) [Note 5: Composition of Certain Financial Statement Items](index=82&type=section&id=Note%205%3A%20Composition%20of%20Certain%20Financial%20Statement%20Items) This note provides a breakdown of Property and Equipment, Net, primarily consisting of computer equipment and software, and Other Assets, which include operating lease right-of-use assets and derivative instruments Property and Equipment, Net (in thousands) | Category | December 31, 2022 | December 31, 2021 | |:---|:---|:---| | Computer equipment and software | $209,803 | $209,844 | | Leasehold improvements | $34,950 | $37,533 | | Furniture, fixtures and equipment | $20,155 | $19,959 | | Less: accumulated depreciation and amortization | $(155,154) | $(153,041) | | **Total** | **$113,900** | **$119,857** | Other Assets (in thousands) | Category | December 31, 2022 | December 31, 2021 | |:---|:---|:---| | Operating lease right-of-use assets | $70,074 | $68,812 | | Real estate owned | $68,242 | $44,640 | | Derivative instruments | $36,807 | $3,541 | | Identifiable intangible assets, net | $22,112 | $36,320 | | Deferred tax assets | $18,069 | $51,451 | | **Total** | **$341,073** | **$335,275** | [Note 6: Borrowings](index=83&type=section&id=Note%206%3A%20Borrowings) This note details the company's **$2.899 billion** consolidated borrowings as of December 31, 2022, including various credit facilities and notes, and confirms compliance with all covenants, noting the repayment of **$150.0 million** 2022 Convertible Notes - The company was in material compliance with all covenants under its financing arrangements as of December 31, 2022[479](index=479&type=chunk) Components of Consolidated Borrowings (in thousands) | Borrowing Type | December 31, 2022 | December 31, 2021 | |:---|:---|:---| | Global senior secured revolving credit facility | $661,738 | $406,635 | | Encore private placement notes | $68,390 | $107,470 | | Senior secured notes | $1,485,888 | $1,613,739 | | Convertible notes and exchangeable notes | $272,500 | $422,500 | | Cabot securitisation senior facility | $423,522 | $473,443 | | **Total (net of discount/issuance costs)** | **$2,898,821** | **$2,997,331** | - The Global Senior Facility was upsized to **$1.14 billion** and its termination date extended to September 2026 in March 2022[480](index=480&type=chunk) - Available capacity under the Global Senior Facility was approximately **$478.3 million** as of December 31, 2022[482](index=482&type=chunk) - The **$150.0 million** 2022 Convertible Notes matured on March 15, 2022, and were settled entirely in cash for **$221.2 million**, with the **$71.2 million** conversion spread recognized in stockholders' equity[487](index=487&type=chunk) [Note 7: Variable Interest Entities](index=86&type=section&id=Note%207%3A%20Variable%20Interest%20Entities) The company consolidates Variable Interest Entities (VIEs) for which it is the primary beneficiary, with its exposure to loss limited to their carrying value, and their assets and liabilities not representing additional claims on the company's general assets - The company consolidates VIEs for which it is the primary beneficiary, including securitized financing vehicles and other immaterial special purpose entities[504](index=504&type=chunk) - The company's exposure to loss from VIEs is limited to the total carrying value of the VIEs[504](index=504&type=chunk) - Assets and liabilities of consolidated VIEs do not represent additional claims on the company's general assets[505](index=505&type=chunk) [Note 8: Common Stock](index=87&type=section&id=Note%208%3A%20Common%20Stock) The company has a **$300.0 million** share repurchase program, under which it repurchased **1,497,184 shares** for **$86.9 million** in 2022, and completed a **$268.3 million** tender offer in 2021, with all repurchased shares retired - The company has a **$300.0 million** share repurchase program, increased in May 2021[507](index=507&type=chunk) - In 2022, **1,497,184 shares** were repurchased for approximately **$86.9 million** under the program[507](index=507&type=chunk) - In December 2021, a modified 'Dutch Auction' tender offer purchased **4,471,995 shares** for **$268.3 million**[508](index=508&type=chunk) - All repurchased shares are retired[507](index=507&type=chunk)[508](index=508&type=chunk) [Note 9: Accumulated Other Comprehensive Loss](index=87&type=section&id=Note%209%3A%20Accumulated%20Other%20Comprehensive%20Loss) Accumulated other comprehensive loss increased significantly to **$(98.8) million** at December 31, 2022, primarily driven by a substantial unrealized loss on foreign currency translation adjustments of **$(78.2) million** Changes in Accumulated Other Comprehensive Loss (in thousands) | Component | December 31, 2022 | December 31, 2021 | December 31, 2020 | |:---|:---|:---|:---| | Derivatives | $36,494 | $516 | $(10,154) | | Currency Translation Adjustments | $(135,310) | $(54,064) | $(58,659) | | **Accumulated Other Comprehensive Loss** | **$(98,816)** | **$(53,548)** | **$(68,813)** | - Accumulated other comprehensive loss increased by **$45.3 million** from 2021 to 2022[510](index=510&type=chunk) - The primary driver was an unrealized loss on foreign currency translation adjustments of **$(78.2) million** in 2022[510](index=510&type=chunk) [Note 10: Stock-Based Compensation](index=87&type=section&id=Note%2010%3A%20Stock-Based%20Compensation) The company's 2017 Incentive Award Plan governs stock-based compensation, with total expense of **$15.4 million** in 2022, all outstanding stock options fully vested, and **$13.1 million** in unrecognized compensation expense for non-vested shares - The 2017 Incentive Award Plan allows for various stock-based awards, including stock options and non-vested shares[511](index=511&type=chunk)[514](index=514&type=chunk) - Total stock-based compensation expense was **$15.4 million** in 2022, **$18.3 million** in 2021, and **$16.6 million** in 2020[515](index=515&type=chunk) - As of December 31, 2022, all outstanding stock options and performance stock options were fully vested[516](index=516&type=chunk)[520](index=520&type=chunk) - Unrecognized compensation expense related to non-vested shares was **$13.1 million** as of December 31, 2022, with a weighted-average remaining expense period of approximately **1.4 years**[521](index=521&type=chunk) [Note 11: Income Taxes](index=90&type=section&id=Note%2011%3A%20Income%20Taxes) This note details the company's income tax provision of **$116.4 million** on **$311.0 million** income before taxes in 2022, resulting in an effective tax rate of **37.4%**, primarily due to a full valuation allowance on U.K. deferred tax assets Income Before Provision for Income Taxes (in thousands) | Geographic | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | US | $331,009 | $390,607 | $259,132 | | Foreign | $(20,020) | $45,934 | $23,766 | | **Total** | **$310,989** | **$436,541** | **$282,898** | Provision for Income Tax (in thousands) | Category | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | Current expense (benefit) | $70,015 | $49,969 | $61,825 | | Deferred expense (benefit) | $46,410 | $35,371 | $8,549 | | **Total provision** | **$116,425** | **$85,340** | **$70,374** | Effective Tax Rate Reconciliation | Component | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | Federal provision | 21.0 % | 21.0 % | 21.0 % | | State provision | 5.0 % | 2.3 % | 3.2 % | | Foreign rate differential | (0.3)% | (1.0)% | (0.5)% | | Change in valuation allowance | 13.2 % | (2.3)% | 0.9 % | | **Effective rate** | **37.4 %** | **19.5 %** | **24.9 %** | - The increase in the effective tax rate to **37.4%** in 2022 was primarily due to recording a full valuation allowance on U.K. deferred tax assets[271](index=271&type=chunk)[530](index=530&type=chunk) Deferred Tax Assets and Liabilities (in thousands) | Category | December 31, 2022 | December 31, 2021 | |:---|:---|:---| | Total deferred tax assets | $126,729 | $148,583 | | Valuation allowance | $(66,625) | $(35,920) | | Total deferred tax assets net of valuation allowance | $60,104 | $112,663 | | Total deferred tax liabilities | $(149,885) | $(151,397) | | **Net deferred tax liability** | **$(89,781)** | **$(38,734)** | [Note 12: Leases](index=93&type=section&id=Note%2012%3A%20Leases) The company's leases, primarily for offices and IT equipment, incurred **$23.0 million** in total costs in 2022, with operating lease ROU assets of **$70.1 million** and liabilities of **$83.6 million** as of December 31, 2022 Components of Lease Expense (in thousands) | Lease Type | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | Operating lease costs | $18,403 | $17,272 | $16,331 | | Finance lease costs (Amortization of ROU assets) | $4,296 | $3,848 | $3,149 | | Finance lease costs (Interest on lease liabilities) | $312 | $419 | $420 | | **Total lease costs** | **$23,011** | **$21,539** | **$19,900** | Lease ROU Assets and Liabilities (in thousands) | Category | December 31, 2022 | December 31, 2021 | |:---|:---|:---| | Operating lease ROU assets | $70,074 | $68,812 | | Finance lease ROU assets | $18,337 | $15,064 | | Operating lease liabilities | $83,598 | $84,314 | | Finance lease liabilities | $5,675 | $7,005 | Weighted-Average Lease Term and Discount Rate (as of December 31, 2022) | Metric | Operating Leases | Finance Leases | |:---|:---|:---| | Weighted-average remaining lease term (in years) | 5.9 | 2.1 | | Weighted-average discount rate | 5.2 % | 3.9 % | [Note 13: Commitments and Contingencies](index=94&type=section&id=Note%2013%3A%20Commitments%20and%20Contingencies) The company is involved in ongoing litigation and regulatory investigations but recorded no material reserves for legal matters as of December 31, 2022, and has forward flow purchase agreements totaling approximately **$444.0 million** - The company is routinely subject to legal actions and regulatory investigations, including claims under FDCPA, FCRA, TCPA, and state consumer protection statutes[542](index=542&type=chunk) - As of December 31, 2022, the company has no material reserves for legal matters, recording loss contingencies only when probable and reasonably estimable[544](index=544&type=chunk)[545](index=545&type=chunk) - As of December 31, 2022, the company had forward flow purchase agreements for nonperforming loans with an estimated minimum aggregate purchase price of approximately **$444.0 million**[547](index=547&type=chunk) [Note 14: Segment and Geographic Information](index=95&type=section&id=Note%2014%3A%20Segment%20and%20Geographic%20Information) The company operates as a single reportable segment (portfolio purchasing and recovery), with 2022 total revenues of **$995.5 million** from the United States and **$402.7 million** from Europe - The company has one reportable segment: portfolio purchasing and recovery, based on similarities in economic characteristics, services, production processes, customer types, and regulatory environment[550](index=550&type=chunk) Total Revenues by Geographic Area (in thousands) | Geographic Area | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | United States | $995,470 | $1,115,572 | $992,916 | | Europe (United Kingdom) | $272,962 | $344,214 | $390,955 | | Europe (Other European countries) | $129,737 | $142,316 | $99,430 | | Other geographies | $178 | $12,397 | $18,099 | | **Total** | **$1,398,347** | **$1,614,499** | **$1,501,400** | Long-Lived Assets by Geographic Area (in thousands) | Geographic Area | December 31, 2022 | December 31, 2021 | |:---|:---|:---| | United States | $82,695 | $104,169 | | International | $101,279 | $84,500 | | **Total** | **$183,974** | **$188,669** | [Note 15: Goodwill and Identifiable Intangible Assets](index=96&type=section&id=Note%2015%3A%20Goodwill%20and%20Identifiable%20Intangible%20Assets) Goodwill, tested annually for impairment at the MCM and Cabot reporting units, decreased to **$821.2 million** at December 31, 2022, primarily due to foreign currency translation, with no impairment found in 2022 - Goodwill is tested annually for impairment at the reporting unit level (MCM and Cabot)[555](index=555&type=chunk)[558](index=558&type=chunk) - As of October 1, 2022, quantitative impairment tests were performed for both reporting units, and no goodwill impairment was found[558](index=558&type=chunk) Goodwill Balance Activity (in thousands) | Metric | 2022 | 2021 | 2020 | |:---|:---|:---|:---| | Balance as of beginning of period | $897,795 | $906,962 | $884,185 | | Effect of foreign currency translation | $(76,581) | $(9,167) | $22,777 | | **Balance as of end of period** | **$821,214** | **$897,795** | **$906,962** | Acquired Intangible Assets, Net (in thousands) | Category | December 31, 2022 Net Carrying Amount | December 31, 2021 Net Carrying Amount | |:---|:---|:---| | Customer relationships | $21,991 | $35,815 | | Developed technologies | — | $19 | | Trade name and other | $121 | $486 | | **Total intangible assets** | **$22,112** | **$36,320** | - Estimated future amortization expense for finite-lived intangible assets is **$4.6 million** for 2023[562](index=562&type=chunk)

Encore Capital Group, Inc. (NASDAQ:ECPG) Q3 2022 Earnings Conference Call November 2, 2022 5:00 PM ET Company Participants Bruce Thomas - VP, IR Ashish Masih - President and CEO Jonathan Clark - EVP and Chief Financial Officer Craig Buick - CEO, Cabot Credit Management Group Ryan Bell - President, Midland Credit Management Conference Call Participants David Scharf - JMP Securities Mark Hughes - Truist Mike Grondahl - Northland Capital Markets Robert Dodd - Raymond James Operator Good day and thank you for s ...

Financial Performance - Total revenues for the three months ended September 30, 2022, were $307,752, a decrease of 25.4% compared to $412,624 for the same period in 2021[9]. - Net income for the three months ended September 30, 2022, was $31,494, down 62.3% from $83,566 in the same period last year[10]. - Earnings per share attributable to Encore Capital Group, Inc. for the three months ended September 30, 2022, were $1.31, compared to $2.76 for the same period in 2021, reflecting a decline of 52.5%[9]. - Total revenues for the nine months ended September 30, 2022, were $1,164.4 million, down 7.4% from $1,257.2 million for the same period in 2021[61]. - Net income for the nine months ended September 30, 2022, was $267.7 million, a decrease from $275.1 million in the same period in 2021, representing a decline of approximately 0.14%[17]. Assets and Liabilities - Total assets as of September 30, 2022, were $4,327,865, a decrease of 6.1% from $4,608,125 as of December 31, 2021[7]. - Total liabilities decreased to $3,134,936 as of September 30, 2022, down 8.4% from $3,422,864 at the end of 2021[7]. - The company’s accumulated other comprehensive loss increased to $(165,721) as of September 30, 2022, compared to $(53,548) at the end of 2021[7]. - As of September 30, 2022, total equity was $1,192,929, a decrease from $1,185,261 as of December 31, 2021[14]. Cash Flow and Investments - Net cash provided by operating activities for the nine months ended September 30, 2022, was $154,876, down from $211,990 for the same period in 2021, a decrease of about 27%[17]. - The company incurred a net cash used in investing activities of $(40,672) for the nine months ended September 30, 2022, compared to a net cash provided of $312,808 in the same period of 2021[17]. - The company reported cash and cash equivalents of $147,035 at the end of the period, down from $158,243 at the end of the same period in 2021[17]. Collections and Portfolio Management - Cash collections for the three months ended September 30, 2022, amounted to $458.3 million[42]. - The company purchased receivable portfolios totaling $232.7 million during the three months ended September 30, 2022[42]. - Collections during the three months ended September 30, 2022, underperformed projected cash flows by approximately $4.9 million, while collections during the nine months over-performed by approximately $51.4 million[44]. - The company experienced a negative change in expected future recoveries of approximately $8.2 million for the three months ended September 30, 2022, but a net positive change of $127.9 million for the nine months[44]. Debt and Financing - Total borrowings as of September 30, 2022, amounted to $2.69 billion, a decrease from $2.997 billion as of December 31, 2021[46]. - The outstanding borrowings under the Global Senior Facility were $596.6 million, with a weighted average interest rate of 4.71% for the three months ended September 30, 2022[47]. - The Encore Private Placement Notes outstanding as of September 30, 2022, were $78.2 million, with an annual interest rate of 5.625%[49]. - The company’s derivative instruments increased significantly to $40.28 million as of September 30, 2022, from $3.54 million at the end of 2021[44]. Market Position and Strategy - The company is a market leader in portfolio purchasing and recovery in the United States and one of the largest credit management services providers in Europe[19]. - The company expects growth in lending and rising delinquency rates to drive future supply increases in the portfolio purchasing market[77]. - The company is focusing on market expansion strategies, particularly in Europe, to drive future growth[118]. - The company is exploring potential acquisition opportunities to further strengthen its market position and enhance product offerings[118]. Regulatory and Operational Challenges - The company continues to face regulatory pressures and high operational costs, which may favor larger participants in the market[77]. - The company is implementing a remediation plan to address a material weakness in internal control over financial reporting, expected to be completed by December 31, 2022[144]. Tax and Compliance - The Company's effective tax rate for the three months ended September 30, 2022, was 25.7%, up from 22.8% for the same period in 2021[57]. - The Company’s subsidiary in Costa Rica is operating under a 100% tax holiday through December 31, 2026, which had an immaterial impact on the tax expense for the periods ended September 30, 2022, and 2021[57].

Encore Capital Group, Inc. (NASDAQ:ECPG) Q2 2022 Earnings Conference Call August 3, 2022 5:00 PM ET Company Participants Bruce Thomas - VP, IR Ashish Masih - President and CEO Jonathan Clark - EVP and Chief Financial Officer Craig Buick - CEO, Cabot Credit Management Group Ryan Bell - President, Midland Credit Management Conference Call Participants Mark Hughes - Truist Company Mike Grondahl - Northland Capital Markets Robert Dodd - Raymond James Spencer James - William Blair & Company Mark Hughes - Truist ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________________________________________________________________________________ FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to__________. COMMISSION FILE NUMBER: 000-26489 ...

Encore Capital Group, Inc. (NASDAQ:ECPG) Q1 2022 Earnings Conference Call May 4, 2022 5:00 PM ET Company Participants Bruce Thomas - VP, IR Ashish Masih - President and CEO Jonathan C. Clark - EVP and Chief Financial Officer Craig Buick - CEO, Cabot Credit Management Group Ryan Bell - President, Midland Credit Management Conference Call Participants Mark Hughes - Truist Securities Michael Grondahl - Northland Capital Markets Spencer James - William Blair Robert Dodd - Raymond James Operator Good day. Thank ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________________________________________________________________________________ FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to__________. COMMISSION FILE NUMBER: 000-2648 ...

Financial Data and Key Metrics Changes - In 2021, global collections reached a record $2.3 billion, up 9% compared to the prior year [36] - Revenues increased by 8% to $1.6 billion in 2021, with US revenues up 12% to $1.1 billion [37] - The leverage ratio improved to 1.9x by the end of 2021, down from 2.4x a year ago [29] Business Line Data and Key Metrics Changes - The MCM business in the US saw collections grow 7% to an all-time high of $1.6 billion [20] - Cabot's collections in Europe reached a record $645 million in 2021, up 16% compared to the prior year [36] - Portfolio purchases in Q4 totaled $183 million, up 44% compared to Q4 of 2020 [35] Market Data and Key Metrics Changes - Portfolio purchases globally were $665 million in 2021, slightly exceeding the previous year's total of $660 million [10] - The US and UK markets experienced lower supply due to fewer charge-offs, but indications of credit normalization are beginning to emerge [11][17] Company Strategy and Development Direction - The company focuses on a three-pillar strategy: market focus, enhancing competitive advantages, and maintaining a strong balance sheet [16][25][28] - The company plans to increase portfolio purchases in 2022 as credit card balances rise and lending normalizes [44] Management's Comments on Operating Environment and Future Outlook - Management noted that consumer behavior is starting to normalize, with rising credit card spending and expectations of increased charge-offs [67] - The company anticipates a continued normalization in the collections environment compared to the exceptional levels seen in 2021 [44] Other Important Information - The company repurchased approximately 23% of its outstanding shares for $390 million in 2021 [31] - The effective tax rate for Q4 was lower than normal at 11%, with expectations for 2022 to be in the low to mid-20s [35] Q&A Session Summary Question: Accounting question regarding recoveries line - Management acknowledged the challenges in forecasting due to unusual consumer behavior during the pandemic and indicated that forecasts are continuously adjusted based on the best available data [46][49] Question: Capital actions and returns - Management confirmed that they will continue to return capital to shareholders while maintaining a strong balance sheet and liquidity [52][54] Question: Normalization of collections - Management explained that they are adjusting forecasts based on the best estimates and that excess recoveries are being monitored closely [56] Question: Purchase environment and supply - Management expressed optimism about the purchase environment, noting that banks are reporting higher spending and charge-off volumes are expected to rise [66][67] Question: Operating expense structure - Management indicated that while the expense structure is largely in place, there will be some upward pressure on expenses as COVID-related savings normalize [69] Question: Pricing dynamics in the US and UK - Management clarified that the price increase is due to supply-demand dynamics rather than a change in the mix of portfolios [72][74] Question: Tax rate expectations - Management suggested that a tax rate in the mid to low 20s would be more appropriate going forward [76] Question: Interest expense and debt structure - Management provided details on the fixed versus floating rate debt, indicating that approximately 87% of their debt is fixed [78] Question: Third-party servicing as a strategic asset - Management highlighted the importance of servicing in their business model, particularly in Europe, and confirmed ongoing investments in this area [81][83]