ENCORE CAPITAL GROUP, INC. This Quarterly Report on Form 10-Q contains "forward-looking statements" relating toEncore Capital Group, Inc. ("Encore") and its subsidiaries (which we may collectively refer to as the "Company," "we," "our" or "us") within the meaning of the securities laws. The words "believe," "expect," "anticipate," "estimate," "project," "intend," "plan," "will," "may," and similar expressions often characterize forward-looking statements. These statements may include, but are not limited to, projections of collections, revenues, income or loss, estimates of capital expenditures, plans for future operations, products or services, financing needs or plans or the impacts of the COVID-19 pandemic, as well as assumptions relating to these matters. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we caution that these expectations or predictions may not prove to be correct or we may not achieve the financial results, savings, or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control or cannot be predicted or quantified, that could cause actual results to differ materially from those suggested by the forward-looking statements. Many factors including, but not limited to, those set forth in our Annual Report on Form 10-K under "Part I, Item 1A-Risk Factors" and those set forth in "Part II, Item 1A, Risk Factors" of our Quarterly Reports could cause our actual results, performance, achievements, or industry results to be very different from the results, performance, achievements or industry results expressed or implied by these forward-looking statements. Our business, financial condition, or results of operations could also be materially and adversely affected by other factors besides those listed. Forward-looking statements speak only as of the date the statements were made. We do not undertake any obligation to update or revise any forward-looking statements to reflect new information or future events, or for any other reason, even if experience or future events make it clear that any expected results expressed or implied by these forward-looking statements will not be realized. In addition, it is generally our policy not to make any specific projections as to future earnings, and we do not endorse projections regarding future performance that may be made by third parties.
Our Business
We are an international specialty finance company providing debt recovery solutions and other related services for consumers across a broad range of financial assets. We purchase portfolios of defaulted consumer receivables at deep discounts to face value and manage them by working with individuals as they repay their obligations and work toward financial recovery. Defaulted receivables are consumers' unpaid financial commitments to credit originators, including banks, credit unions, consumer finance companies and commercial retailers. Defaulted receivables may also include receivables subject to bankruptcy proceedings. We also provide debt servicing and other portfolio management services to credit originators for non-performing loans inEurope .Encore Capital Group, Inc. ("Encore") has three primary business units: MCM, which consists ofMidland Credit Management, Inc. and its subsidiaries and domestic affiliates; Cabot, which consists ofCabot Credit Management Limited ("CCM") and its subsidiaries and European affiliates, and LAAP, which is comprised of our investments and operations inLatin America andAsia-Pacific .
MCM (
Through MCM, we are a market leader in portfolio purchasing and recovery in
Cabot (Europe ) Through Cabot, we are one of the largest credit management services providers inEurope and a market leader in theUnited Kingdom . Cabot, in addition to its primary business of portfolio purchasing and recovery, also provides a range of debt servicing offerings such as early stage collections, business process outsourcing ("BPO"), and contingent collections, including throughWescot Credit Services Limited ("Wescot"), a leadingU.K. contingency debt collection and BPO services company.
LAAP (
We have purchased non-performing loans inMexico . Additionally, we have invested inEncore Asset Reconstruction Company ("EARC") inIndia . We previously owned non-performing loans inColombia andPeru (sold inAugust 2021 ) andBrazil (sold inApril 2020 ).
To date, operating results from LAAP have not been significant to our total
consolidated operating results. Our long-term growth strategy is focused on
continuing to invest in our core portfolio purchasing and recovery business in
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Table of Contents Government Regulation MCM (United States ) As discussed in more detail under "Part I - Item 1 - Business - Government Regulation" contained in our Annual Report on Form 10-K, our operations inthe United States are subject to federal, state and municipal statutes, rules, regulations and ordinances that establish specific guidelines and procedures that debt purchasers and collectors must follow when collecting consumer accounts, including among others, specific guidelines and procedures for communicating with consumers and prohibitions on unfair, deceptive or abusive debt collection practices. Cabot (Europe ) As discussed in more detail under "Part I - Item 1 - Business - Government Regulation" contained in our Annual Report on Form 10-K, our operations inEurope are affected by foreign statutes, rules and regulations regarding debt collection and debt purchase activities. These statutes, rules, regulations, ordinances, guidelines and procedures are modified from time to time by the relevant authorities charged with their administration, which could affect the way we conduct our business.UK debt purchase and services collections businesses are principally regulated by theFinancial Conduct Authority ("FCA"), theUK Information Commissioner's Office and theUK Office of Communications . TheFCA has applied its rules to consumer credit firms in a number of areas, including its high-level principles and conduct of business standards. InJuly 2022 theFCA published a new Consumer Duty, providing a higher level of consumer protection in retail financial markets and combining existing consumer treatment requirements with enhanced standards. Firms will now be required to "act to deliver good outcomes for retail customers". TheFCA has significant powers and, as theFCA deepens its understanding of the industry through continued supervision, it is likely that the regulatory requirements applicable to the debt purchase industry will continue to increase via requirements such as the Consumer Duty. In addition, it is likely that the compliance framework that will be needed to continue to satisfy theFCA requirements will demand continued investment and resources in our compliance governance framework.
Portfolio Purchasing and Recovery
MCM (
Inthe United States , the defaulted consumer receivable portfolios we purchase are primarily charged-off credit card debt portfolios. A small percentage of our capital deployment inthe United States is comprised of receivable portfolios subject to Chapter 13 and Chapter 7 bankruptcy proceedings. We purchase receivables based on robust, account-level valuation methods and employ proprietary statistical and behavioral models across ourU.S. operations. These methods and models allow us to value portfolios accurately (limiting the risk of overpaying), avoid buying portfolios that are incompatible with our methods or strategies and align the accounts we purchase with our business channels to maximize future collections. As a result, we have been able to realize significant returns from the receivables we acquire. We maintain strong relationships with many of the largest financial service providers inthe United States . Cabot (Europe ) InEurope , our purchased under-performing debt portfolios primarily consist of paying and non-paying consumer loan accounts. We also purchase: (1) portfolios that are in insolvency status, in particular, individual voluntary arrangements; and (2) non-performing secured mortgage portfolios and real estate assets previously securing mortgage portfolios. When we take possession of the underlying real estate assets or purchase real estate assets, we refer to those as real estate-owned assets, or REO assets. We purchase paying and non-paying receivable portfolios using a proprietary pricing model that utilizes account-level statistical and behavioral data. This model allows us to value portfolios accurately and quantify portfolio performance in order to maximize future collections. As a result, we have been able to realize significant returns from the assets we have acquired. We maintain strong relationships with many of the largest financial services providers in theUnited Kingdom . 25
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Purchases and Collections
Portfolio Pricing, Supply and Demand
MCM (
Issuers have continued to sell predominantly fresh portfolios. Fresh portfolios are portfolios that are generally sold within six months of the consumer's account being charged-off by the financial institution. Pricing in the third quarter remained in line with the prior quarter. Issuers continue to sell their volume in mostly forward flow arrangements that are often committed early in the calendar year. We believe growth in lending and rising delinquency rates will drive future supply increases. Lending has now surpassed pre-pandemic levels in theU.S. and we have started to see an increase in portfolio supply.
We believe that smaller competitors continue to face difficulties in the portfolio purchasing market because of the high cost to operate due to regulatory pressure and cost of capital. We believe this favors larger participants, like MCM, because the larger market participants are better able to adapt to these pressures and commit to larger forward flow agreements.
Cabot (
TheU.K. market for charged-off portfolios prior to the COVID-19 pandemic generally provided a relatively consistent pipeline of opportunities, despite a historically low level of charge-off rates, as creditors have embedded debt sales as an integral part of their business models and consumer indebtedness has continued to grow since the financial crisis. An increasing amount of volume is sold in multi-year forward flow arrangements. The Spanish debt market continues to be one of the largest inEurope with significant debt sales activity, and an expectation of a significant amount of debt to be sold and serviced in the future. Additionally, financial institutions continue to experience both market and regulatory pressure to dispose of non-performing loans, which should continue to provide debt purchasing opportunities inSpain . Banks decreased portfolio sales at the beginning of the COVID-19 pandemic in order to focus on customers' needs. While we have seen a resumption of sales activity across many of our European markets, underlying default rates are generally low by historic levels, and sales levels are expected to fluctuate from quarter to quarter. In general, supply remains below pre-pandemic levels while portfolio pricing remains competitive across our European footprint.
Purchases by Geographic Location
The following table summarizes purchases of receivable portfolios by geographic location during the periods presented (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
MCM (United States) $ 176,559 $ 102,339 $ 387,091 $ 284,230
Cabot (Europe) 56,093 65,849 188,073 196,864
Total purchases of receivable portfolios
During the three months endedSeptember 30, 2022 , we invested$232.7 million to acquire receivable portfolios, with face values aggregating$1.7 billion , for an average purchase price of 13.9% of face value. The amount invested in receivable portfolios increased$64.5 million , or 38.3%, compared with the$168.2 million invested during the three months endedSeptember 30, 2021 , where we acquired receivable portfolios with face values aggregating$1.4 billion , for an average purchase price of 12.0% of face value. During the nine months endedSeptember 30, 2022 , we invested$575.2 million to acquire receivable portfolios, with face values aggregating$4.7 billion , for an average purchase price of 12.2% of face value. The amount invested in receivable portfolios increased$94.1 million , or 19.6%, compared with the$481.1 million invested during the nine months endedSeptember 30, 2021 , where we acquired receivable portfolios with face values aggregating$3.9 billion , for an average purchase price of 12.4% of face value. The average purchase price, as a percentage of face value, varies from period to period depending on, among other factors, the quality of the accounts purchased and the length of time from charge-off to the time we purchase the portfolios. Inthe United States , portfolio purchases increased during the three and nine months endedSeptember 30, 2022 , as compared to the corresponding period in the prior year. The majority of our deployments in theU.S. came from forward flow agreements, and the timing, contract duration, and volumes for each contract can fluctuate leading to variation when comparing to prior periods. Portfolio purchases in theU.S. are slowly returning to pre-pandemic levels as supply begins to increase. 26
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InEurope , portfolio purchases decreased during the three and nine months endedSeptember 30, 2022 , compared to the corresponding periods in the prior year, primarily due to the unfavorable impact from foreign currency translation driven by the strengthening of theU.S. dollar against the British Pound. Portfolio purchases inEurope remain below pre-pandemic average levels. In theUK , bank delinquencies remain at relatively low levels, and the level of outstanding unsecured consumer borrowings, while increasing, is still below pre-pandemic levels. During the three months endedSeptember 30, 2022 and 2021, we invested$3.4 million and$8.1 million in REO assets, respectively. During the nine months endedSeptember 30, 2022 and 2021, we invested$38.6 million and$11.7 million in REO assets, respectively.
Collections from Purchased Receivables by Channel and Geographic Location
We utilize three channels for the collection of our purchased receivables: call
center and digital collections; legal collections; and collection agencies. The
call center and digital collections channel consists of collections that result
from our call centers, direct mail program and online collections. The legal
collections channel consists of collections that result from our internal legal
channel or from our network of retained law firms. The collection agencies
channel consists of collections from third party collections agencies to whom we
pay a fee or commission. We utilize this channel to supplement capacity in our
internal call centers, to service accounts in regions where we do not have
collections operations or for accounts purchased where we maintain the
collection agency servicing relationship. The following table summarizes the
total collections by collection channel and geographic area during the periods
presented (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
MCM (United States ):
Call center and digital collections $ 185,568 $ 234,923 $ 600,787 $ 762,487
Legal collections 139,545 170,538 449,383 510,285
Collection agencies 200 1,121 995 6,833
Subtotal 325,313 406,582 1,051,165 1,279,605
Cabot (Europe):
Call center and digital collections 49,654 71,192 154,171 226,873
Legal collections 44,065 45,144 147,837 137,926
Collection agencies 38,386 39,053 119,769 121,545
Subtotal 132,105 155,389 421,777 486,344
Other geographies: 838 4,719 2,439 19,629
Total collections from purchased receivables
Gross collections from purchased receivables decreased by$108.4 million , or 19.1%, to$458.3 million during the three months endedSeptember 30, 2022 , as compared to$566.7 million during the three months endedSeptember 30, 2021 . Gross collections from purchased receivables decreased by$310.2 million , or 17.4%, to$1,475.4 million during the nine months endedSeptember 30, 2022 , as compared to$1,785.6 million during the nine months endedSeptember 30, 2021 . The decreases in collections from purchased receivables inthe United States during the three and nine months endedSeptember 30, 2022 , as compared to the corresponding periods in the prior year, were primarily a result of an unusually high level of collections in the year ago period resulting from changes in consumer behavior during the COVID-19 pandemic. The decreases were also a result of lower purchasing volumes in recent periods due to the COVID-19 pandemic. The changes in consumer behavior that resulted from the impacts of the COVID-19 pandemic, while more prevalent a year ago, continued through the first half of 2022. We believe the pandemic-related drivers of this changed behavior have normalized. The decreases in collections from purchased receivables inEurope during the three and nine months endedSeptember 30, 2022 , as compared to the corresponding periods in the prior year, were primarily due to the unfavorable impact from foreign currency translation, primarily by the strengthening of theU.S. dollar against the British Pound. In addition, continuing labor market tightness in theUK affected agent staffing levels and, consequently, mildly impacted collections for the quarter. 27
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Results of Operations
Results of operations, in dollars and as a percentage of total revenues, were as follows (in thousands, except percentages):
Three Months Ended
2022 2021
Revenues
Revenue from receivable portfolios$ 297,219 96.6 %$ 316,225 76.6 % Changes in recoveries (13,080) (4.3) % 65,913 16.0 % Total debt purchasing revenue 284,139 92.3 % 382,138 92.6 % Servicing revenue 21,992 7.2 % 29,321 7.1 % Other revenues 1,621 0.5 % 1,165 0.3 % Total revenues 307,752 100.0 % 412,624 100.0 % Operating expenses Salaries and employee benefits 89,241 29.0 % 94,662 22.9 % Cost of legal collections 52,891 17.2 % 64,170 15.6 % General and administrative expenses 37,274 12.0 % 35,819 8.7 % Other operating expenses 28,286 9.2 % 25,226 6.1 % Collection agency commissions 7,884 2.6 % 11,964 2.9 % Depreciation and amortization 11,659 3.8 % 14,136 3.4 % Total operating expenses 227,235 73.8 % 245,977 59.6 % Income from operations 80,517 26.2 % 166,647 40.4 % Other expense Interest expense (39,308) (12.8) % (40,874) (9.9) % Other income (expense) 1,205 0.4 % (17,504) (4.2) % Total other expense (38,103) (12.4) % (58,378) (14.1) % Income before income taxes 42,414 13.8 % 108,269 26.3 % Provision for income taxes (10,920) (3.6) % (24,703) (6.0) % Net income$ 31,494 10.2 %$ 83,566 20.3 % 28
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Nine Months Ended September 30,
2022 2021
Revenues
Revenue from receivable portfolios$ 907,606 77.9 %$ 982,393 78.1 % Changes in recoveries 179,293 15.4 % 176,628 14.1 % Total debt purchasing revenue 1,086,899 93.3 % 1,159,021 92.2 % Servicing revenue 71,926 6.2 % 93,901 7.5 % Other revenues 5,526 0.5 % 4,274 0.3 % Total revenues 1,164,351 100.0 % 1,257,196 100.0 % Operating expenses Salaries and employee benefits 285,077 24.5 % 288,892 23.0 % Cost of legal collections 163,756 14.1 % 198,212 15.8 % General and administrative expenses 105,775 9.1 % 102,790 8.1 % Other operating expenses 82,718 7.1 % 81,895 6.5 % Collection agency commissions 27,412 2.3 % 38,465 3.1 % Depreciation and amortization 35,134 3.0 % 37,694 3.0 % Total operating expenses 699,872 60.1 % 747,948 59.5 % Income from operations 464,479 39.9 % 509,248 40.5 % Other expense Interest expense (110,995) (9.5) % (131,559) (10.5) % Loss on extinguishment of debt - - % (9,300) (0.7) % Other income (expense) 3,392 0.3 % (16,993) (1.4) % Total other expense (107,603) (9.2) % (157,852) (12.6) % Income before income taxes 356,876 30.7 % 351,396 27.9 % Provision for income taxes (89,194) (7.7) % (76,278) (6.1) % Net income 267,682 23.0 % 275,118 21.8 % Net income attributable to noncontrolling interest - - % (419) 0.0 %
Net income attributable to
$ 267,682 23.0 %$ 274,699 21.8 %
Comparison of Results of Operations
Revenues
Our revenues primarily include debt purchasing revenue, which is revenue recognized from engaging in debt purchasing and recovery activities. We apply our charge-off policy and fully write-off the amortized costs (i.e., face value net of noncredit discount) of the individual receivables we acquire immediately after purchasing the portfolio. We then record a negative allowance that represents the present value of all expected future recoveries for pools of receivables that share similar risk characteristics using a discounted cash flow approach, which is presented as "Investment in receivable portfolios, net" in our condensed consolidated statements of financial condition. The discount rate is an effective interest rate (or "purchase EIR") established based on the purchase price of the portfolio and the expected future cash flows at the time of purchase.
Debt purchasing revenue includes two components:
(1) Revenue from receivable portfolios, which is the accretion of the discount on the negative allowance due to the passage of time (generally the portfolio balance multiplied by the EIR), and
(2) Changes in recoveries, which includes:
(a) Recoveries above (below) forecast, which is the difference between (i) actual cash collected/recovered during the current period and (ii) expected cash recoveries for the current period, which generally represents over or under performance for the period; and
(b) Changes in expected future recoveries, which is the present value change of expected future recoveries, where such change generally results from (i) collections "pulled forward from" or "pushed out to" future periods (i.e.
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--------------------------------------------------------------------------------amounts either collected early or expected to be collected later) and (ii) magnitude and timing changes to estimates of expected future collections (which can be increases or decreases).
Certain pools already fully recovered their cost basis and became zero basis
portfolios ("ZBA") prior to our adoption of CECL. We did not establish a
negative allowance for these pools as we elected the Transition Resource Group
for Credit Losses' practical expedient to retain the integrity of these legacy
pools. Similar to how we treated ZBA collections prior to the adoption of CECL,
all subsequent collections to the ZBA pools are recognized as ZBA revenue, which
is included in revenue from receivable portfolios in our condensed consolidated
statements of income.
Servicing revenue consists primarily of fee-based income earned on accounts
collected on behalf of others, primarily credit originators. We earn fee-based
income by providing debt servicing (such as early stage collections, BPO,
contingent collections, trace services and litigation activities) to credit
originators for non-performing loans in
Other revenues primarily include revenues recognized from the sale of real estate assets that are acquired as a result of our investments in non-performing secured residential mortgage portfolios and real estate assets inEurope and LAAP. The following table summarizes revenues for the periods presented (in thousands, except percentages): Three Months Ended September 30, % Increase 2022 2021 $ Change (decrease) Revenue recognized from portfolio basis$ 289,028 $ 304,341 $ (15,313) (5.0) % ZBA revenue 8,191 11,884 (3,693) (31.1) % Revenue from receivable portfolios 297,219 316,225 (19,006) (6.0) % Recoveries (below) above forecast (4,880) 77,064 (81,944) (106.3) % Changes in expected future recoveries (8,200) (11,151) 2,951 26.5 % Changes in recoveries (13,080) 65,913 (78,993) (119.8) % Debt purchasing revenue 284,139 382,138 (97,999) (25.6) % Servicing revenue 21,992 29,321 (7,329) (25.0) % Other revenues 1,621 1,165 456 39.1 % Total revenues$ 307,752 $ 412,624 $ (104,872) (25.4) % Nine Months Ended September 30, % Increase 2022 2021 $ Change (decrease)
Revenue recognized from portfolio basis
$ (62,311) (6.6) % ZBA revenue 25,905 38,381 (12,476) (32.5) % Revenue from receivable portfolios 907,606 982,393 (74,787) (7.6) % Recoveries above forecast 51,407 277,861 (226,454) (81.5) % Changes in expected future recoveries 127,886 (101,233) 229,119 226.3 % Changes in recoveries 179,293 176,628 2,665 1.5 % Debt purchasing revenue 1,086,899 1,159,021 (72,122) (6.2) % Servicing revenue 71,926 93,901 (21,975) (23.4) % Other revenues 5,526 4,274 1,252 29.3 % Total revenues$ 1,164,351 $ 1,257,196 $ (92,845) (7.4) % 30
-------------------------------------------------------------------------------- Our operating results are impacted by foreign currency translation, which represents the effect of translating operating results where the functional currency is different than ourU.S. dollar reporting currency. The strengthening of theU.S. dollar relative to other foreign currencies has an unfavorable impact on our international revenues, and the weakening of theU.S. dollar relative to other foreign currencies has a favorable impact on our international revenues. Our revenues were unfavorably impacted by foreign currency translation, primarily by the strengthening of theU.S. dollar against the British Pound by 17.3% during the three months endedSeptember 30, 2022 , compared to the three months endedSeptember 30, 2021 , and by 10.4% for the nine months endedSeptember 30, 2022 , compared to the nine months endedSeptember 30, 2021 . The decreases in revenue recognized from portfolio basis during the three and nine months endedSeptember 30, 2022 , as compared to the three and nine months endedSeptember 30, 2021 , other than resulting from the unfavorable impact from foreign currency translation discussed above, were primarily due to a lower portfolio basis (i.e., a lower investment in receivable balance) driven by a lower volume of purchases in recent periods.
As discussed above, ZBA revenue represents collections from our legacy ZBA pools. We expect our ZBA revenue to continue to decline as we collect on these legacy pools. We do not expect to have new ZBA pools in the future.
Recoveries above or below forecast represent over and under-performance in the reporting period, respectively. Collections during the three months endedSeptember 30, 2022 , under-performed the projected cash flows by approximately$4.9 million . We experienced an unusually high level of collections resulting from changes in consumer behavior during the COVID-19 pandemic in addition to improvements in collections capabilities, and therefore increased expected future cash flows for certain pool groups in previous periods. The pandemic-related drivers of this changed behavior have normalized in recent quarters, and for the three months endedSeptember 30, 2022 , collections under-performed the projected cash flows. Collections during the nine months endedSeptember 30, 2022 , over-performed the projected cash flows by approximately$51.4 million . When reassessing the forecasts of expected lifetime recoveries during the three months endedSeptember 30, 2022 , management considered, among other factors, historical and current collection performance, changes in consumer behaviors, and macroeconomic environment and believes that projected future cash flows for certain static pools resulted in decreased total expected recoveries. As a result, we have updated our forecast, resulting in changes in timing and amount of total estimated remaining collections which in turn, when discounted to present value, resulted in a negative change in expected future recoveries of approximately$8.2 million during the three months endedSeptember 30, 2022 . This negative change in expected future recoveries, together with the positive changes recorded in previous quarters, resulted in a net positive change of expected future recoveries of$127.9 million during the nine months endedSeptember 30, 2022 . During the three and nine months endedSeptember 30, 2021 , the Company recorded approximately$11.2 million and$101.2 million , respectively, in negative change in expected future period recoveries. 31 -------------------------------------------------------------------------------- The following tables summarize collections from purchased receivables, revenue from receivable portfolios, end of period receivable balance and other related supplemental data, by year of purchase (in thousands, except percentages): Three Months Ended September 30, 2022 As of September 30, 2022 Revenue from Investment in Receivable Changes in Receivable Collections Portfolios Recoveries Portfolios Monthly EIR United States: ZBA$ 8,184 $ 8,184 $ - $ - - % 2011 3,961 4,393 (582) 1,539 88.6 % 2012 4,779 4,574 18 3,536 42.0 % 2013 9,434 10,963 (2,332) 8,496 40.5 % 2014 5,839 3,972 669 19,095 6.7 % 2015 6,269 3,191 1,889 26,798 3.9 % 2016 11,908 6,645 1,398 51,362 4.1 % 2017 19,621 12,582 135 71,864 5.5 % 2018 32,975 18,279 (2,306) 144,877 3.9 % 2019 59,400 32,635 (1,513) 266,853 3.8 % 2020 73,574 36,666 7,536 313,031 3.7 % 2021 58,391 38,760 (1,446) 315,128 3.9 % 2022 30,978 24,250 2,348 380,805 2.9 % Subtotal 325,313 205,094 5,814 1,603,384 4.1 % Europe: ZBA 7 7 - - - % 2013 16,231 14,098 (4,549) 133,011 3.2 % 2014 14,981 11,770 (3,352) 119,425 3.0 % 2015 10,154 7,222 (1,098) 91,243 2.4 % 2016(1) 8,965 7,168 (1,084) 81,564 2.8 % 2017 14,670 8,903 (2,478) 144,706 1.9 % 2018 15,100 9,252 (2,597) 183,490 1.6 % 2019 14,656 8,998 (1,131) 149,704 1.9 % 2020 10,366 6,674 (1,300) 90,513 2.2 % 2021 15,783 10,784 (3,225) 179,361 1.9 % 2022 11,192 7,249 1,920 165,613 1.6 % Subtotal 132,105 92,125 (18,894) 1,338,630 2.2 % Other geographies:(2) All vintages 838 - - 34,188 - % Subtotal 838 - - 34,188 - % Total$ 458,256 $ 297,219 $ (13,080) $ 2,976,202 3.2 % _______________________
(1)Portfolio balance includes non-accrual pool groups. The EIR presented is only for pool groups that accrete portfolio revenue.
(2)All portfolios are on non-accrual basis. Annual pool groups for other geographies have been aggregated for disclosure purposes.
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Three Months Ended September 30, 2021 As of September 30, 2021
Revenue from Investment in
Receivable Changes in Receivable
Collections Portfolios Recoveries Portfolios Monthly EIR
United States :
ZBA $ 11,247 $ 11,247 $ - $ - - %
2011 6,343 4,442 1,815 1,604 88.6 %
2012 6,371 4,371 1,779 3,320 42.0 %
2013 14,535 11,842 2,377 9,658 40.5 %
2014 8,810 5,311 1,365 25,039 6.7 %
2015 9,872 4,829 2,524 39,618 3.9 %
2016 20,762 9,188 7,177 73,942 4.1 %
2017 33,102 16,798 8,297 101,034 5.3 %
2018 54,240 23,335 9,181 188,650 3.8 %
2019 95,390 40,104 22,558 331,071 3.8 %
2020 107,901 46,988 33,139 403,776 3.7 %
2021 38,009 26,023 757 264,786 4.0 %
Subtotal 406,582 204,478 90,969 1,442,498 4.4 %
Europe:
ZBA 22 22 - - - %
2013 23,131 19,265 (4,703) 188,032 3.2 %
2014 20,522 15,195 (3,087) 158,709 3.0 %
2015 13,901 9,775 (2,984) 126,822 2.4 %
2016(1) 11,798 10,087 (7,791) 113,336 2.8 %
2017 19,984 13,325 (6,372) 222,894 1.9 %
2018 18,558 13,090 (6,856) 264,678 1.6 %
2019 20,231 12,403 (1,305) 213,600 1.8 %
2020 14,795 8,432 5,889 120,945 2.3 %
2021 12,447 8,512 796 186,080 1.9 %
Subtotal 155,389 110,106 (26,413) 1,595,096 2.2 %
Other geographies:(1), (2)
All vintages 4,719 1,641 1,357 45,677 - %
Subtotal 4,719 1,641 1,357 45,677 - %
Total $ 566,690 $ 316,225 $ 65,913 $ 3,083,271 3.3 %
______________________
(1)Portfolio balance includes non-accrual pool groups. The EIR presented is only for pool groups that accrete portfolio revenue.
(2)Annual pool groups for other geographies have been aggregated for disclosure purposes.
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Nine Months Ended September 30, 2022 As of September 30, 2022
Revenue from Investment in
Receivable Changes in Receivable
Collections Portfolios Recoveries Portfolios Monthly EIR
United States :
ZBA $ 25,880 $ 25,880 $ - $ - - %
2011 14,541 12,536 2,026 1,539 88.6 %
2012 15,710 12,735 3,464 3,536 42.0 %
2013 33,899 34,798 (2,352) 8,496 40.5 %
2014 19,436 12,675 2,936 19,095 6.7 %
2015 20,239 10,910 (410) 26,798 3.9 %
2016 41,296 22,059 4,045 51,362 4.1 %
2017 68,623 41,259 7,308 71,864 5.5 %
2018 116,625 57,425 34,342 144,877 3.9 %
2019 205,418 101,362 70,220 266,853 3.8 %
2020 249,218 115,142 86,722 313,031 3.7 %
2021 188,280 124,295 (686) 315,128 3.9 %
2022 52,000 41,413 5,711 380,805 2.9 %
Subtotal 1,051,165 612,489 213,326 1,603,384 4.1 %
Europe:
ZBA 26 25 - - - %
2013 53,910 46,474 (7,490) 133,011 3.2 %
2014 50,373 38,125 - 119,425 3.0 %
2015 32,966 23,514 (1,452) 91,243 2.4 %
2016(1) 30,559 23,476 (1,386) 81,564 2.8 %
2017 48,047 30,545 (13,706) 144,706 1.9 %
2018 48,567 30,840 (7,964) 183,490 1.6 %
2019 49,314 29,406 2,562 149,704 1.9 %
2020 35,344 21,789 4,065 90,513 2.2 %
2021 50,681 36,078 (12,158) 179,361 1.9 %
2022 21,990 14,845 3,496 165,613 1.6 %
Subtotal 421,777 295,117 (34,033) 1,338,630 2.2 %
Other geographies:(2)
All vintages 2,439 - - 34,188 - %
Subtotal 2,439 - - 34,188 - %
Total $ 1,475,381 $ 907,606 $ 179,293 $ 2,976,202 3.2 %
______________________
(1)Portfolio balance includes non-accrual pool groups. The EIR presented is only for pool groups that accrete portfolio revenue.
(2)Annual pool groups for other geographies have been aggregated for disclosure purposes.
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Nine Months Ended September 30, 2021 As of September 30, 2021
Revenue from Investment in
Receivable Changes in Receivable
Collections Portfolios Recoveries Portfolios Monthly EIR
United States :
ZBA $ 35,418 $ 35,418 $ - $ - - %
2011 18,660 13,554 5,014 1,604 88.6 %
2012 19,425 13,930 4,786 3,320 42.0 %
2013 44,569 37,252 7,269 9,658 40.5 %
2014 27,714 17,896 936 25,039 6.7 %
2015 34,788 16,393 5,237 39,618 3.9 %
2016 71,702 30,703 17,073 73,942 4.1 %
2017 117,087 57,023 22,940 101,034 5.3 %
2018 184,002 79,230 27,475 188,650 3.8 %
2019 317,708 137,499 42,570 331,071 3.8 %
2020 335,862 151,098 93,395 403,776 3.7 %
2021 72,670 44,963 9,203 264,786 4.0 %
Subtotal 1,279,605 634,959 235,898 1,442,498 4.4 %
Europe:
ZBA 82 82 - - - %
2013 72,423 62,806 (30,524) 188,032 3.2 %
2014 65,210 49,571 (20,137) 158,709 3.0 %
2015 44,723 31,013 (9,323) 126,822 2.4 %
2016(1) 39,204 31,081 (5,594) 113,336 2.8 %
2017 65,295 41,981 (9,409) 222,894 1.9 %
2018 61,584 41,292 (13,968) 264,678 1.6 %
2019 67,610 38,863 3,062 213,600 1.8 %
2020 46,174 25,853 18,272 120,945 2.3 %
2021 24,039 16,350 4,653 186,080 1.9 %
Subtotal 486,344 338,892 (62,968) 1,595,096 2.2 %
Other geographies:(1), (2)
All vintages 19,629 8,542 3,698 45,677 - %
Subtotal 19,629 8,542 3,698 45,677 - %
Total $ 1,785,578 $ 982,393 $ 176,628 $ 3,083,271 3.3 %
_____________________
(1)Portfolio balance includes non-accrual pool groups. The EIR presented is only for pool groups that accrete portfolio revenue.
(2)Annual pool groups for other geographies have been aggregated for disclosure purposes.
Servicing revenues during the three and nine months endedSeptember 30, 2022 decreased as compared to servicing revenues during the three and nine months endedSeptember 30, 2021 . The decreases were primarily attributable to reduced service demand from BPO clients and the unfavorable impact of foreign currency translation, which was primarily the result of the strengthening of theU.S. dollar against the British Pound. Other revenues increased during the three and nine months endedSeptember 30, 2022 as compared to the corresponding periods in the prior year, primarily driven by the increased sale of real estate assets, the increases were partially offset by the unfavorable impact of foreign currency translation, which was primarily the result of the strengthening of theU.S. dollar against the British Pound and Euro. 35
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Operating Expenses
The following table summarizes operating expenses for the periods presented (in thousands, except percentages):
Three Months Ended
2022 2021 $ Change % Change
Salaries and employee benefits $ 89,241 $ 94,662 $ (5,421) (5.7) %
Cost of legal collections 52,891 64,170 (11,279) (17.6) %
General and administrative expenses 37,274 35,819 1,455 4.1 %
Other operating expenses 28,286 25,226 3,060 12.1 %
Collection agency commissions 7,884 11,964 (4,080) (34.1) %
Depreciation and amortization 11,659 14,136 (2,477) (17.5) %
Total operating expenses $ 227,235 $ 245,977 $ (18,742) (7.6) %
Nine Months Ended September 30,
2022 2021 $ Change % Change
Salaries and employee benefits $ 285,077 $ 288,892 $ (3,815) (1.3) %
Cost of legal collections 163,756 198,212 (34,456) (17.4) %
General and administrative expenses 105,775 102,790 2,985 2.9 %
Other operating expenses 82,718 81,895 823 1.0 %
Collection agency commissions 27,412 38,465 (11,053) (28.7) %
Depreciation and amortization 35,134 37,694 (2,560) (6.8) %
Total operating expenses $ 699,872 $ 747,948 $ (48,076) (6.4) %
Our operating results are impacted by foreign currency translation, which
represents the effect of translating operating results where the functional
currency is different than our U.S. dollar reporting currency. The strengthening
of the U.S. dollar relative to other foreign currencies has a favorable impact
on our international operating expenses, and the weakening of the U.S. dollar
relative to other foreign currencies has an unfavorable impact on our
international operating expenses. Our operating expenses were favorably impacted
by foreign currency translation, primarily by the strengthening of the U.S.
dollar against the British Pound by approximately 17.3% for the three months
ended September 30, 2022 , as compared to the three months ended September 30,
2021 , and by approximately 10.4% for the nine months ended September 30, 2022 as
compared to the nine months ended September 30, 2021 .
Operating expenses are explained in more detail as follows:
Salaries and Employee Benefits
The decrease in salaries and employee benefits during the three months endedSeptember 30, 2022 , as compared to the three months endedSeptember 30, 2021 , was primarily due to the following reasons:
•Decrease of headcount;
•Favorable impact of foreign currency translation of
•Decrease in stock-based compensation expense attributed to expense reversals
due to forfeiture of certain stock award of approximately
•The decrease was partially offset by increased salaries due to market adjustments.
The decrease in salaries and employee benefits during the nine months ended
•Decrease of headcount;
•Favorable impact of foreign currency translation of approximately
•The decrease was partially offset by increased salaries due to market adjustments.
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Cost of Legal Collections
Cost of legal collections primarily includes contingent fees paid to our external network of attorneys and the cost of litigation. We pursue legal collections using a network of attorneys that specialize in collection matters and through our internal legal channel. Under the agreements with our contracted attorneys, we advance certain out-of-pocket court costs. Cost of legal collections does not include internal legal channel employee costs, which are included in salaries and employee benefits in our condensed consolidated statements of income.
The following table summarizes our cost of legal collections during the periods presented (in thousands, except percentages):
Three Months Ended September 30,
2022 2021 $ Change % Change
Court costs $ 30,997 $ 37,970 $ (6,973) (18.4) %
Legal collection fees 21,894 26,200 (4,306) (16.4) %
Total cost of legal collections $ 52,891 $ 64,170 $ (11,279) (17.6) %
Nine Months Ended September 30,
2022 2021 $ Change % Change
Court costs $ 92,575 $ 119,366 $ (26,791) (22.4) %
Legal collection fees 71,181 78,846
(7,665) (9.7) %
Total cost of legal collections
The decreases of cost of legal collections during the three and nine months
ended
•Decreased legal collection fees driven by decreased legal channel collections;
•Decreased court costs due to fewer placements in the legal collection channel; and
•Favorable impact of foreign currency translation of approximately$1.3 million and$2.4 million , primarily by the strengthening of theU.S. dollar against the British Pound during the three and nine months endedSeptember 30, 2022 , respectively, as compared to the corresponding prior periods.
General and Administrative Expenses
The increases in general and administrative expense during the three and nine months endedSeptember 30, 2022 , compared to the three and nine months endedSeptember 30, 2021 , were primarily due to the following reasons:
•Increased general and administrative expense associated with our return to the office initiatives;
•Increased costs associated with corporate travel of$1.2 million and$2.4 million during the three and nine months endedSeptember 30, 2022 , respectively, as compared to the corresponding prior periods; and •The increases were partially offset by the favorable impact of foreign currency translation of approximately$2.0 million and$4.1 million , primarily by the strengthening of theU.S. dollar against the British Pound during the three and nine months endedSeptember 30, 2022 , respectively, as compared to the corresponding prior periods.
Other Operating Expenses
The increases in other operating expenses during the three and nine months endedSeptember 30, 2022 , as compared to the three and nine months endedSeptember 30, 2021 , were primarily due to increased various other operating expenses to support our collection activities. The increases were partially offset by the favorable impact of foreign currency translation of approximately$1.2 million and$2.1 million , primarily by the strengthening of theU.S. dollar against the British Pound during the three and nine months endedSeptember 30, 2022 , respectively, as compared to the corresponding prior periods. 37
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Collection Agency Commissions
Collection agency commissions are commissions paid to third-party collection agencies. Collections through the collections agencies channel are predominately inEurope and vary from period to period depending on, among other things, the number of accounts placed with an agency versus accounts collected internally. Commission rates vary depending on, among other things, the amount of time that has passed since the charge-off of the accounts placed with an agency, the asset class, and the geographic location of the receivables. Generally, freshly charged-off accounts have a lower commission rate than accounts that have been charged off for a longer period of time, and commission rates for purchased bankruptcy portfolios are lower than the commission rates for charged-off credit card accounts.
Depreciation and Amortization
The decreases in depreciation and amortization expense during the three and nine months endedSeptember 30, 2022 , as compared to the three and nine months endedSeptember 30, 2021 , were primarily due to the following reasons:
•The write-off of certain computer software and equipment during the three and
nine months ended
•Favorable impact of foreign currency translation of approximately$0.8 million and$1.5 million , primarily by the strengthening of theU.S. dollar against the British Pound during the three and nine months endedSeptember 30, 2022 , respectively, as compared to the corresponding prior periods.
Interest Expense
The following tables summarize our interest expense (in thousands, except
percentages):
Three Months Ended September 30,
2022 2021 $ Change % Change
Stated interest on debt obligations $ 35,472 $ 36,600 $ (1,128) (3.1) %
Amortization of debt issuance costs 3,516 3,917 (401) (10.2) %
Amortization of debt discount 320 357 (37) (10.4) %
Total interest expense $ 39,308 $ 40,874 $ (1,566) (3.8) %
Nine Months Ended September 30,
2022 2021 $ Change % Change
Stated interest on debt obligations $ 99,011 $ 117,881 $ (18,870) (16.0) %
Amortization of debt issuance costs 10,985 12,469 (1,484) (11.9) %
Amortization of debt discount 999 1,209 (210) (17.4) %
Total interest expense $ 110,995 $ 131,559 $ (20,564) (15.6) %
The decreases in interest expense during the three and nine months ended
•Lower average debt balances of approximately
•The favorable impact of foreign currency translation of approximately
•The decreases were partially offset by the effect from rising interest rates in recent periods.
Other Income (Expense) Other income or expense consists primarily of foreign currency exchange gains or losses, interest income, and gains or losses recognized on certain transactions outside of our normal course of business. Other income was$1.2 million and$3.4 million during the three and nine months endedSeptember 30, 2022 , respectively. Other expense was$17.5 million and$17.0 million during the three and nine months endedSeptember 30, 2021 , respectively. We recorded approximately$17.4 million in other expense as a result of the loss on the sale of our investment inColombia andPeru during the three and nine months endedSeptember 30, 2021 . 38
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Provision for Income Taxes
Provision for income taxes and effective tax rate are as follows for the periods
presented ($ in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Provision for income taxes $ 10,920 $ 24,703 $ 89,194 $ 76,278
Effective tax rate 25.7 % 22.8 % 25.0 % 21.7 %
For the three and nine months ended September 30, 2022 , the differences between
our effective tax rate and the federal statutory rate were primarily due to
state and foreign income taxes. For the three and nine months ended September
30, 2021 , the differences between our effective tax rate and the federal
statutory rate were primarily due to the proportion of income earned in higher
tax rate jurisdictions compared to lower tax rate jurisdictions.
Non-GAAP Disclosure
In addition to the financial information prepared in conformity with Generally
Accepted Accounting Principles ("GAAP"), we provide historical non-GAAP
financial information. Management believes that the presentation of such
non-GAAP financial information is meaningful and useful in understanding the
activities and business metrics of our operations. Management believes that
these non-GAAP financial measures reflect an additional way of viewing aspects
of our business that, when viewed with our GAAP results, provide a more complete
understanding of factors and trends affecting our business.
Management believes that the presentation of these measures provides investors
with greater transparency and facilitates comparison of operating results across
a broad spectrum of companies with varying capital structures, compensation
strategies, derivative instruments, and amortization methods, which provide a
more complete understanding of our financial performance, competitive position,
and prospects for the future. Readers should consider the information in
addition to, but not instead of, our financial statements prepared in accordance
with GAAP. This non-GAAP financial information may be determined or calculated
differently by other companies, limiting the usefulness of these measures for
comparative purposes.
Adjusted EBITDA. Management utilizes adjusted EBITDA (defined as net income
before interest income and expense, taxes, depreciation and amortization,
stock-based compensation expenses, acquisition, integration and restructuring
related expenses, and other charges or gains that are not indicative of ongoing
operations), in the evaluation of our operating performance. Adjusted EBITDA for
the periods presented is as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
GAAP net income, as reported $ 31,494 $ 83,566 $ 267,682 $ 275,118
Adjustments:
Interest expense 39,308 40,874 110,995 131,559
Interest income (749) (270) (1,774) (1,170)
Provision for income taxes 10,920 24,703 89,194 76,278
Depreciation and amortization 11,659 14,136 35,134 37,694
Stock-based compensation expense 3,191 3,847 12,231 12,903
Acquisition, integration and restructuring
related expenses(1) 13 17,950 1,179 17,950
Loss on extinguishment of debt - - - 9,300
Adjusted EBITDA $ 95,836 $
184,806
________________________
(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.
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(2)Collections applied to principal balance is calculated in the table below:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Collections applied to investment in
receivable portfolios, net $ 161,037 $ 250,465 $ 567,775 $ 803,185
Less: Changes in recoveries 13,080 (65,913) (179,293) (176,628)
REO proceeds applied to basis 5,046 3,629 14,360 15,208
Collections applied to principal balance
Supplemental Performance Data
The tables included in this supplemental performance data section include detail for purchases, collections and ERC by year of purchase.
Our collection expectations are based on account characteristics and economic variables. Additional adjustments are made to account for qualitative factors that may affect the payment behavior of our consumers and servicing related adjustments to ensure our collection expectations are aligned with our operations. We continue to refine our process of forecasting collections both domestically and internationally with a focus on operational enhancements. Our collection expectations vary between types of portfolio and geographic location. For example, in theU.K. , due to the higher concentration of payment plans, as compared to theU.S. and other locations inEurope , we expect to receive streams of collections over longer periods of time. As a result, past performance of pools in certain geographic locations or of certain types of portfolio are not necessarily a suitable indicator of future results in other locations or for other types of portfolio. The supplemental performance data presented in this section is impacted by foreign currency translation, which represents the effect of translating financial results where the functional currency of our foreign subsidiary is different than ourU.S. dollar reporting currency. For example, the strengthening of theU.S. dollar relative to other foreign currencies has an unfavorable reporting impact on our international purchases, collections, and ERC, and the weakening of theU.S. dollar relative to other foreign currencies has a favorable impact on our international purchases, collections, and ERC.
We utilize proprietary forecasting models to continuously evaluate the economic life of each pool.
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Cumulative Collections Money Multiple - Cumulative Collections from Purchased Receivables to Purchase Price Multiple
The following table summarizes our receivable purchases, related gross collections, and cumulative collections money multiples (in thousands, except multiples): Year of Purchase Cumulative Collections throughSeptember 30, 2022 Purchase Price(1) <2013 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total(2) CCMM(3)United States : <2013$ 2,692,552 $ 4,931,172 $ 904,731 $ 650,989 $ 470,442 $ 320,000 $ 229,963 $ 170,377 $ 136,627 $ 104,898 $ 92,172 $ 56,077 $ 8,067,448 3.0 2013 551,865 - 230,051 397,646 298,068 203,386 147,503 107,399 84,665 64,436 59,859 33,953 1,626,966 2.9 2014 517,650 - - 144,178 307,814 216,357 142,147 94,929 69,059 47,628 34,896 19,436 1,076,444 2.1 2015 499,055 - - - 105,610 231,102 186,391 125,673 85,042 64,133 42,774 20,239 860,964 1.7 2016 553,100 - - - - 110,875 283,035 234,690 159,279 116,452 87,717 41,296 1,033,344 1.9 2017 527,796 - - - - - 111,902 315,853 255,048 193,328 144,243 68,623 1,088,997 2.1 2018 629,773 - - - - - - 175,042 351,696 308,302 228,919 116,625 1,180,584 1.9 2019 675,987 - - - - - - - 174,693 416,315 400,250 205,418 1,196,676 1.8 2020 538,508 - - - - - - - - 213,450 430,514 249,218 893,182 1.7 2021 405,050 - - - - - - - - - 120,354 188,280 308,634 0.8 2022 385,684 - - - - - - - - - - 52,000 52,000 0.1 Subtotal 7,977,020 4,931,172 1,134,782 1,192,813 1,181,934 1,081,720 1,100,941 1,223,963 1,316,109 1,528,942 1,641,698 1,051,165 17,385,239 2.2Europe : 2013 619,079 - 134,259 249,307 212,129 165,610 146,993 132,663 113,228 93,203 93,907 53,910 1,395,209 2.3 2014 623,129 - - 135,549 198,127 156,665 137,806 129,033 105,337 84,255 84,169 50,373 1,081,314 1.7 2015 419,941 - - - 65,870 127,084 103,823 88,065 72,277 55,261 57,817 32,983 603,180 1.4 2016 258,218 - - - - 44,641 97,587 83,107 63,198 51,609 51,017 30,569 421,728 1.6 2017 461,571 - - - - - 68,111 152,926 118,794 87,549 86,107 48,047 561,534 1.2 2018 433,302 - - - - - - 49,383 118,266 78,846 80,629 48,567 375,691 0.9 2019 273,354 - - - - - - - 44,118 80,502 88,448 49,314 262,382 1.0 2020 116,899 - - - - - - - - 22,721 59,803 35,344 117,868 1.0 2021 255,788 - - - - - - - - - 43,082 50,681 93,763 0.4 2022 188,073 - - - - - - - - - - 21,989 21,989 0.1 Subtotal 3,649,354 - 134,259 384,856 476,126 494,000 554,320 635,177 635,218 553,946 644,979 421,777 4,934,658 1.4
Other geographies(4):
All vintages 340,283 - 10,465 29,828 42,665 109,884 112,383 108,480 75,601 28,960 20,682 2,439 541,387 1.6 Subtotal 340,283 - 10,465 29,828 42,665 109,884 112,383 108,480 75,601 28,960 20,682 2,439 541,387 1.6 Total$ 11,966,657 $ 4,931,172 $ 1,279,506 $ 1,607,497 $ 1,700,725 $ 1,685,604 $ 1,767,644 $ 1,967,620 $ 2,026,928 $ 2,111,848 $ 2,307,359 $ 1,475,381 $ 22,861,284 1.9 ________________________
(1)Adjusted for Put-Backs and Recalls. Put-Backs ("Put-Backs") and recalls ("Recalls") represent ineligible accounts that are returned by us or recalled by the seller pursuant to specific guidelines as set forth in the respective purchase agreement.
(2)Cumulative collections from inception through
(3)Cumulative Collections Money Multiple ("CCMM") through
(4)Annual pool groups for other geographies have been aggregated for disclosure purposes.
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Purchase Price Multiple - Total Estimated Collections from Purchased Receivables to Purchase Price Multiple
The following table summarizes our purchases, resulting historical gross collections, estimated remaining gross collections from purchased receivables, and purchase price multiple (in thousands, except multiples):
Estimated
Historical Remaining Total Estimated
Purchase Price(1) Collections(2) Collections Gross Collections Purchase Price Multiple(3)
United States :
<2012 $ 2,143,750 $ 6,751,085 $ 119,720 $ 6,870,805 3.2
2012 548,802 1,316,363 52,070 1,368,433 2.5
2013(4) 551,865 1,626,966 126,214 1,753,180 3.2
2014(4) 517,650 1,076,444 62,196 1,138,640 2.2
2015 499,055 860,964 60,485 921,449 1.8
2016 553,100 1,033,344 118,841 1,152,185 2.1
2017 527,796 1,088,997 197,834 1,286,831 2.4
2018 629,773 1,180,584 321,962 1,502,546 2.4
2019 675,987 1,196,676 578,290 1,774,966 2.6
2020 538,508 893,182 671,511 1,564,693 2.9
2021 405,050 308,634 682,665 991,299 2.4
2022 385,684 52,000 754,257 806,257 2.1
Subtotal 7,977,020 17,385,239 3,746,045 21,131,284 2.6
Europe:
2013(4) 619,079 1,395,209 522,418 1,917,627 3.1
2014(4) 623,129 1,081,314 413,381 1,494,695 2.4
2015(4) 419,941 603,180 266,719 869,899 2.1
2016 258,218 421,728 226,525 648,253 2.5
2017 461,571 561,534 325,389 886,923 1.9
2018 433,302 375,691 380,123 755,814 1.7
2019 273,354 262,382 327,880 590,262 2.2
2020 116,899 117,868 205,284 323,152 2.8
2021 255,788 93,763 401,642 495,405 1.9
2022 188,073 21,989 332,512 354,501 1.9
Subtotal 3,649,354 4,934,658 3,401,873 8,336,531 2.3
Other geographies(5):
All vintages 340,283 541,387 54,124 595,511 1.8
Subtotal 340,283 541,387 54,124 595,511 1.8
Total $ 11,966,657 $ 22,861,284 $ 7,202,042 $ 30,063,326 2.5
________________________
(1)Purchase price refers to the cash paid to a seller to acquire a portfolio
less Put-backs, Recalls, and other adjustments. Put-Backs and Recalls represent
ineligible accounts that are returned by us or recalled by the seller pursuant
to specific guidelines as set forth in the respective purchase agreement.
(2)Cumulative collections from inception through
(3)Purchase Price Multiple represents total estimated gross collections divided by the purchase price.
(4)Includes portfolios acquired in connection with certain business combinations.
(5)Annual pool groups for other geographies have been aggregated for disclosure purposes.
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Estimated Remaining Gross Collections by Year of Purchase
The following table summarizes our estimated remaining gross collections from purchased receivable portfolios and estimated future cash flows from real estate-owned assets (in thousands):
Estimated Remaining Gross Collections by Year of Purchase(1)
2022(3) 2023 2024 2025 2026 2027 2028 2029 2030 >2030 Total(2)
United States :
<2012 $ 11,351 $ 36,300 $ 25,167 $ 17,256 $ 11,714 $ 7,870 $ 5,096 $ 3,000 $ 1,530 $ 436 $ 119,720
2012 4,639 14,729 10,317 7,224 5,059 3,544 2,482 1,740 1,219 1,117 52,070
2013(4) 10,996 34,466 24,452 17,329 12,282 8,706 6,171 4,374 3,101 4,337 126,214
2014(4) 5,396 17,367 11,940 8,393 5,918 4,175 2,946 2,079 1,469 2,513 62,196
2015 5,564 17,443 11,823 7,906 5,403 3,804 2,684 1,896 1,343 2,619 60,485
2016 10,925 34,564 23,361 15,963 10,516 7,158 5,036 3,551 2,509 5,258 118,841
2017 18,183 57,607 38,655 26,333 17,932 11,953 8,218 5,795 4,098 9,060 197,834
2018 30,840 96,458 62,310 42,310 28,668 19,504 12,866 8,860 6,255 13,891 321,962
2019 55,374 171,425 115,746 76,548 51,090 34,590 23,526 15,625 10,805 23,561 578,290
2020 63,885 197,827 131,724 90,600 60,122 40,786 27,821 18,928 12,642 27,176 671,511
2021 58,608 222,681 132,106 84,128 57,792 39,111 27,257 19,251 13,677 28,054 682,665
2022 44,124 207,382 174,332 103,582 68,554 48,338 32,950 23,172 16,470 35,353 754,257
Subtotal 319,885 1,108,249 761,933 497,572 335,050 229,539 157,053 108,271 75,118 153,375 3,746,045
Europe :
2013(4) 15,572 59,475 55,040 49,604 45,382 41,650 37,812 34,243 31,272 152,368 522,418
2014(4) 14,126 51,610 46,077 41,171 36,984 32,723 29,607 26,690 23,472 110,921 413,381
2015(4) 9,256 34,437 30,133 27,253 24,033 21,727 18,990 17,054 15,177 68,659 266,719
2016 9,922 34,263 29,594 25,628 21,674 18,095 15,259 12,965 11,108 48,017 226,525
2017 14,389 49,602 41,508 35,117 30,060 26,628 22,235 19,002 16,660 70,188 325,389
2018 14,321 54,057 49,321 41,299 35,951 31,322 27,072 23,345 20,130 83,305 380,123
2019 14,756 51,823 44,561 37,878 31,536 25,423 21,499 18,284 15,843 66,277 327,880
2020 9,618 35,922 30,925 26,400 22,183 16,756 12,363 10,278 7,811 33,028 205,284
2021 15,599 58,694 52,512 46,389 40,613 35,142 29,992 25,290 20,324 77,087 401,642
2022 11,993 51,435 48,113 40,812 33,982 28,875 24,776 21,272 17,408 53,846 332,512
Subtotal 129,552 481,318 427,784 371,551 322,398 278,341 239,605 208,423 179,205 763,696 3,401,873
Other geographies(5):
All vintages 2,416 9,100 8,105 6,812 4,326 2,470 2,246 2,246 2,246 14,157 54,124
Subtotal 2,416 9,100 8,105 6,812 4,326 2,470 2,246 2,246 2,246 14,157 54,124
Portfolio ERC 451,853 1,598,667 1,197,822 875,935 661,774 510,350 398,904 318,940 256,569 931,228 7,202,042
REO ERC(6) 5,827 34,921 43,250 19,265 3,196 969 1,675 1,009 182 - 110,294
Total ERC $ 457,680 $ 1,633,588 $ 1,241,072 $ 895,200 $ 664,970 $ 511,319 $ 400,579 $ 319,949 $ 256,751 $ 931,228 $ 7,312,336
________________________
(1)As of September 30, 2022 , ERC for Zero Basis Portfolios include approximately
$73.9 million for purchased consumer and bankruptcy receivables in the United
States . ERC for Zero Basis Portfolios in Europe and other geographies was
immaterial. ERC also includes approximately $54.1 million from cost recovery
portfolios, primarily in other geographies.
(2)Represents the expected remaining gross cash collections over a 180-month
period. As of September 30, 2022 , ERC for 84-month and 120-month periods were:
84-Month ERC 120-Month ERC
United States $ 3,494,019 $ 3,673,434
Europe 2,408,540 2,900,091
Other geographies 37,160 43,899
Portfolio ERC 5,939,719 6,617,424
REO ERC 109,962 110,294
Total ERC $ 6,049,681 $ 6,727,718 (3)Amount for 2022 consists of three months data from
(4)Includes portfolios acquired in connection with certain business combinations.
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(5)Annual pool groups for other geographies have been aggregated for disclosure purposes.
(6)Real estate-owned assets ERC includes approximately
Estimated Future Collections Applied to Investment in Receivable Portfolios
As of
United States Europe Other Geographies Total
2022(1) $ 127,829 $ 47,356 $ 2,391 $ 177,576
2023 475,767 166,512 8,157 650,436
2024 338,239 154,529 5,954 498,722
2025 212,960 134,642 4,872 352,474
2026 140,666 117,513 2,863 261,042
2027 95,647 101,399 1,629 198,675
2028 64,565 86,667 1,483 152,715
2029 44,270 76,325 1,483 122,078
2030 30,794 65,445 1,483 97,722
2031 21,917 59,169 1,483 82,569
2032 15,743 55,106 1,483 72,332
2033 11,636 53,219 907 65,762
2034 8,658 52,944 - 61,602
2035 6,838 55,447 - 62,285
2036 5,234 61,280 - 66,514
2037 2,621 51,077 - 53,698
Total $ 1,603,384 $ 1,338,630 $ 34,188 $ 2,976,202
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(1)Amount for 2022 consists of three months data from
Cash Efficiency Margin
Cash efficiency margin facilitates a comparison of cash receipts to operating expenses and enhances visibility into operating expense management. The following table summarizes our cash efficiency margin calculation for the periods indicated (in thousands, except for percentages):
Last Twelve Months Ended September 30,
2022 2021 Change
Collections $ 1,997,162 $ 2,322,184 (14.0)%
Servicing revenue $ 98,803 $ 126,602 (22.0)%
Cash receipts (A) $ 2,095,965 $ 2,448,786 (14.4)%
Operating expenses (B) $ 933,151 $ 1,006,345 (7.3)%
LTM Cash Efficiency Margin (A-B)/A 55.5 % 58.9 % -340 bps
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Purchases by Quarter
The following table summarizes the receivable portfolios we purchased by quarter, and the respective purchase prices and fair value (in thousands):
# of Purchase
Quarter Accounts Face Value Price
Q1 2020 943 $ 1,703,022 $ 214,113
Q2 2020 754 1,305,875 147,939
Q3 2020 735 1,782,733 170,131
Q4 2020 558 1,036,332 127,689
Q1 2021 749 1,328,865 170,178
Q2 2021 612 1,151,623 142,728
Q3 2021 767 1,403,794 168,188
Q4 2021 861 1,888,198 183,435
Q1 2022 652 1,176,749 169,505
Q2 2022 768 1,849,188 173,007
Q3 2022 949 1,675,828 232,652
Liquidity and Capital Resources
Liquidity
The following table summarizes our cash flow activities for the periods
presented (in thousands):
Nine Months Ended September 30,
2022 2021
(Unaudited)
Net cash provided by operating activities $ 154,876 $ 211,990
Net cash (used in) provided by investing activities (40,672) 312,808
Net cash used in financing activities (140,692) (564,673)
Operating Cash Flows
Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities.
Net cash provided by operating activities was$154.9 million and$212.0 million during the nine months endedSeptember 30, 2022 and 2021, respectively. Operating cash flows are derived by adjusting net income for non-cash operating items such as depreciation and amortization, changes in recoveries, stock-based compensation charges, and changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations.
Investing Cash Flows
Cash flows relating to investing activities is primarily affected by receivable portfolio purchases offset by collection proceeds applied to the investment in receivable portfolios. Net cash used in investing activities was$40.7 million during the nine months endedSeptember 30, 2022 and net cash provided by investing activities was$312.8 million during the nine months endedSeptember 30, 2021 . Receivable portfolio purchases, net of put-backs, were$569.0 million and$473.0 million during the nine months endedSeptember 30, 2022 and 2021, respectively. Collection proceeds applied to the investment in receivable portfolios, were$567.8 million and$803.2 million during the nine months endedSeptember 30, 2022 and 2021, respectively. Financing Cash Flows
Financing cash flows are generally affected by borrowings under our credit facilities and proceeds from various debt offerings, offset by repayments of amounts outstanding under our credit facilities and repayments of various notes.
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Net cash used in financing activities was$140.7 million and$564.7 million during the nine months endedSeptember 30, 2022 and 2021, respectively. Borrowings under our credit facilities were$637.3 million and$418.9 million during the nine months endedSeptember 30, 2022 and 2021, respectively. Repayments of amounts outstanding under our credit facilities were$432.4 million and$714.0 million during the nine months endedSeptember 30, 2022 and 2021, respectively. We paid$221.2 million and$161.0 million to settle our convertible senior notes using cash on hand and drawings under our Global Senior Facility during the nine months endedSeptember 30, 2022 and 2021, respectively.
Capital Resources
Historically, we have met our cash requirements by utilizing our cash flows from operations, cash collections from our investment in receivable portfolios, bank borrowings, debt offerings, and equity offerings. Depending on the capital markets, we consider additional financings to fund our operations and acquisitions. Our primary capital resources are cash collections from our investment in receivable portfolios and bank borrowings. From time to time, we may repurchase outstanding debt or equity and/or restructure or refinance debt obligations. Our primary cash requirements have included the purchase of receivable portfolios, entity acquisitions, operating expenses, the payment of interest and principal on borrowings, and the payment of income taxes.
We are in material compliance with all covenants under our financing
arrangements. See "Note 7: Borrowings" in the notes to our condensed
consolidated financial statements for a further discussion of our debt.
Available capacity under our Global Senior Facility, after taking into account
applicable debt covenants, was
Our Board of Directors has approved a$300.0 million share repurchase program. Repurchases under this program are expected to be made from cash on hand and/or a drawing from our Global Senior Facility and may be made from time to time, subject to market conditions and other factors, in the open market, through private transactions, block transactions, or other methods as determined by our management and Board of Directors, and in accordance with market conditions, other corporate considerations, and applicable regulatory requirements. The program does not obligate us to acquire any particular amount of common stock, and it may be modified or suspended at our discretion. During the three and nine months endedSeptember 30, 2022 , we repurchased 457,244 and 1,280,857 shares of our common stock for approximately$25.9 million and$76.6 million , respectively. During the three and nine months endedSeptember 30, 2021 , the Company repurchased 854,002 and 1,976,857 shares of its common stock for approximately$40.7 million and$88.1 million , respectively. Our practice is to retire the shares repurchased. Our cash and cash equivalents as ofSeptember 30, 2022 , consisted of$19.9 million held byU.S. -based entities and$127.1 million held by foreign entities. Most of our cash and cash equivalents held by foreign entities is indefinitely reinvested and may be subject to material tax effects if repatriated. However, we believe that our sources of cash and liquidity are sufficient to meet our business needs inthe United States and do not expect that we will need to repatriate the funds.
Included in cash and cash equivalents is cash that was collected on behalf of,
and remains payable to, third-party clients. The balance of cash held for
clients was
Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, timing of cash collections from our consumers, and other risks detailed in our Risk Factors. However, we believe that we have sufficient liquidity to fund our operations for at least the next twelve months, given our expectation of continued positive cash flows from operations, cash collections from our investment in receivable portfolios, our cash and cash equivalents, our access to capital markets, and availability under our credit facilities. Our future cash needs will depend on our acquisitions of portfolios and businesses.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance withU.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Our actual results could differ from these estimates under different assumptions or conditions. Refer to "Critical Accounting Policies and Estimates" contained in Part II, Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , for a complete discussion of our critical accounting policies and estimates. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year endedDecember 31, 2021 . 46
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