Encore Capital Group(ECPG) - 2024 Q1 - Quarterly Results

First Quarter 2024 Financial Results Overview Encore Capital Group's Q1 2024 performance aligned with expectations, showing growth in portfolio purchasing, collections, and cash generation, driven by favorable U.S. market conditions Executive Summary and Key Highlights Encore Capital Group's Q1 2024 performance met expectations, driven by strong portfolio purchasing and global collections growth, particularly in the U.S. market CEO Commentary CEO Ashish Masih highlighted Q1 2024 performance aligned with expectations, signaling a turning point for operational and financial growth - CEO Ashish Masih stated that Q1 2024 performance aligned well with expectations, reinforcing the belief that 2024 will be a turning point for Encore's operational and financial results due to growth in portfolio purchasing, collections, and cash generation[2] - The U.S. market continues to offer highly favorable purchasing conditions, driven by credit card lending growth and rising charge-off rates, leading to a record $237 million in Q1 portfolio purchases by MCM[2] - In Europe, the portfolio purchasing market remains competitive, and despite some improved pricing, it does not consistently reflect the higher cost of capital, leading to disciplined and constrained Cabot portfolio purchases[2] - Global collections reached $511 million, an increase of 10% compared to a year ago, which was in line with expectations and reflects a stable collections environment[2] - The company is on track to deliver on its 2024 guidance, which includes portfolio purchasing exceeding 2023 totals and collections growing approximately 8% to over $2 billion[2] Q1 2024 Key Financial Highlights Key financial highlights for Q1 2024 include strong U.S. purchasing conditions and significant global collections growth - Highly favorable purchasing conditions continue in the U.S. market[3] Q1 2024 Key Financial Metrics | Metric | Q1 2024 | YoY Change | | :-------------------- | :-------- | :--------- | | Portfolio purchases | $296 million | - | | U.S. purchases | $237 million | - | | Global collections | $511 million | +10% | | GAAP EPS | $0.95 | - | Financial Highlights Table Q1 2024 financial highlights show portfolio purchases up 7% to $295.7 million, collections up 10% to $510.9 million, and GAAP EPS rising 27% to $0.95 Q1 2024 Financial Performance Summary | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Change | | :------------------------------------------------ | :-------- | :-------- | :----- | | Portfolio purchases | $295,714 | $276,431 | 7% | | Estimated Remaining Collections (ERC) | $8,307,294 | $7,789,980 | 7% | | Collections | $510,887 | $462,356 | 10% | | Revenues | $328,386 | $312,630 | 5% | | Operating expenses | $244,795 | $242,492 | 1% | | GAAP net income | $23,239 | $18,626 | 25% | | GAAP earnings per share | $0.95 | $0.75 | 27% | - U.S. purchases in Q1 2024 were $236.5 million, compared to $213.5 million in Q1 2023[4] - Europe purchases were $59.2 million in Q1 2024, down from $63.0 million in Q1 2023[4] Company Information and Disclosures This section provides essential company information, including its business model, non-GAAP financial measure explanations, and forward-looking statement disclaimers About Encore Capital Group, Inc. Encore Capital Group is an international specialty finance company providing debt recovery solutions, acquiring consumer receivables globally, and operating under a Consumer Bill of Rights - 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[9] - Through its subsidiaries, Encore purchases portfolios of consumer receivables from major banks, credit unions, and utility providers globally[9] - Encore is the first and only company of its kind to operate with a Consumer Bill of Rights, providing industry-leading commitments to consumers and helping them restore financial health[10] - Headquartered in San Diego, Encore is a NASDAQ Global Select company (ECPG) and a component stock of the Russell 2000, S&P Small Cap 600, and Wilshire 4500[10] Non-GAAP Financial Measures Explanation This section explains non-GAAP financial measures like Adjusted EBITDA, used by management for operational evaluation but not as GAAP alternatives - The news release includes certain financial measures, such as Adjusted EBITDA, that exclude the impact of certain items and are not calculated in accordance with U.S. generally accepted accounting principles (GAAP)[8] - Management utilizes Adjusted EBITDA to evaluate operations and believes it is a useful indicator of the Company's ability to generate cash collections in excess of operating expenses[8] - 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[8] Forward-Looking Statements The press release includes forward-looking statements on future performance, subject to risks and uncertainties, with no obligation to update - Statements in the press release that are not historical facts, particularly those using words like "will," "may," "believe," "expects," or "anticipates," constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995[11] - These forward-looking statements involve risks, uncertainties, and other factors which may cause actual results, performance, or achievements to be materially different from those expressed or implied[11] - The Company disclaims any intent or obligation to update these forward-looking statements[11] Investor Relations Contact Bruce Thomas, VP of Global Investor Relations, serves as the primary contact for investor inquiries - The contact for investor relations is Bruce Thomas, Vice President, Global Investor Relations, Encore Capital Group, Inc[12] Conference Call and Webcast Encore hosted a conference call and webcast on May 8, 2024, to discuss Q1 results, with a replay available online - Encore hosted a conference call and slide presentation on May 8, 2024, at 2:00 p.m. Pacific / 5:00 p.m. Eastern time to present and discuss first quarter results[5] - A replay of the webcast is available on the Company's website shortly after the call concludes for those who cannot listen to the live broadcast[6] Condensed Consolidated Financial Statements This section presents the condensed consolidated financial statements, including statements of financial condition, income, and cash flows for Q1 2024 Condensed Consolidated Statements of Financial Condition As of March 31, 2024, total assets increased to $4.687 billion, driven by receivable portfolios, with total liabilities at $3.733 billion and equity at $953.9 million Condensed Consolidated Statements of Financial Condition | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $172,990 | $158,364 | | Investment in receivable portfolios, net | $3,531,387 | $3,468,432 | | Total assets | $4,687,175 | $4,630,486 | | Borrowings | $3,364,029 | $3,318,031 | | Total liabilities | $3,733,316 | $3,693,948 | | Total stockholders' equity | $953,859 | $936,538 | - Assets of consolidated variable interest entities (VIEs) included $26.9 million in cash and cash equivalents and $736.2 million in investment in receivable portfolios, net, as of March 31, 2024[16] Condensed Consolidated Statements of Income Q1 2024 total revenues rose 5% to $328.4 million, with net income up 25% to $23.2 million and diluted EPS at $0.95 Condensed Consolidated Statements of Income | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :---------------------------------------------- | :-------- | :-------- | | Total revenues | $328,386 | $312,630 | | Revenue from receivable portfolios | $315,852 | $295,674 | | Total debt purchasing revenue | $303,443 | $286,173 | | Servicing revenue | $20,379 | $22,585 | | Total operating expenses | $244,795 | $242,492 | | Income from operations | $83,591 | $70,138 | | Interest expense | $(55,765) | $(46,835) | | Net income | $23,239 | $18,626 | | Diluted EPS | $0.95 | $0.75 | - Income from operations increased by $13.45 million, or 19.2%, from $70.1 million in Q1 2023 to $83.6 million in Q1 2024[18] Condensed Consolidated Statements of Cash Flows Q1 2024 saw net cash from operations increase to $51.0 million, investing activities use $90.9 million, and financing activities provide $55.8 million, leading to a $15.9 million cash increase Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :-------------------------------- | :-------- | :-------- | | Net cash provided by operating activities | $50,984 | $35,913 | | Net cash used in investing activities | $(90,882) | $(130,715) | | Net cash provided by financing activities | $55,790 | $110,374 | | Net increase in cash and cash equivalents | $15,892 | $15,572 | | Cash and cash equivalents, end of period | $172,990 | $158,774 | - Purchases of receivable portfolios, net of put-backs, were $(291.4) million in Q1 2024, compared to $(274.6) million in Q1 2023[20] - Proceeds from senior secured notes were $500.0 million in Q1 2024, with no comparable amount in Q1 2023, while proceeds from issuance of convertible senior notes were $0 in Q1 2024 compared to $230.0 million in Q1 2023[20] Supplemental Financial Information This section provides supplemental financial details, including the reconciliation of non-GAAP metrics like Adjusted EBITDA Reconciliation of Non-GAAP Metrics (Adjusted EBITDA) Adjusted EBITDA for Q1 2024 increased to $98.2 million, reconciled from GAAP net income by adding back non-operating and non-recurring expenses Reconciliation of Adjusted EBITDA | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :------------------------------- | :-------- | :-------- | | GAAP net income, as reported | $23,239 | $18,626 | | Interest expense | $55,765 | $46,835 | | Provision for income taxes | $7,253 | $6,409 | | Depreciation and amortization | $7,848 | $10,870 | | Stock-based compensation expense | $3,357 | $4,052 | | Acquisition, integration and restructuring related expenses | $2,319 | $5,526 | | Adjusted EBITDA | $98,218 | $91,374 | - Adjusted EBITDA increased by $6.844 million, or 7.5%, from $91.4 million in Q1 2023 to $98.2 million in Q1 2024[21] - Collections applied to principal balance were $214.6 million in Q1 2024, up from $183.0 million in Q1 2023[21]