ENCORE CAPITAL GROUP INC [ECPG] Filings

10-Q 1 ecpg-20240630.htm 10-Q ecpg-20240630

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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, 2024 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.

(Exact name of registrant as specified in its charter)


Delaware			48-1090909
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)

350 Camino De La Reina, Suite 100

San Diego, California 92108

(Address of principal executive offices, including zip code)

(877) 445 - 4581

(Registrant’s telephone number, including area code)

(Not Applicable)

(Former name, former address and former fiscal year, if changed since last report)

_______________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value Per Share

ECPG

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class						Outstanding at July 31, 2024
Common Stock, $0.01 par value						23,690,958 shares

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ENCORE CAPITAL GROUP, INC.

INDEX TO FORM 10-Q


			Page
PART I – FINANCIAL INFORMATION			3
Item 1— Condensed Consolidated Financial Statements (Unaudited)			3
Condensed Consolidated Statements of Financial Condition			3
Condensed Consolidated Statements of Income			4
Condensed Consolidated Statements of Comprehensive Income			5
Condensed Consolidated Statements of Equity			6
Condensed Consolidated Statements of Cash Flows			8
Notes to Condensed Consolidated Financial Statements			9
Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies			9
Note 2: Earnings Per Share			10
Note 3: Fair Value Measurements			10
Note 4: Derivatives and Hedging Instruments			12
Note 5: Investment in Receivable Portfolios, Net			15
Note 6: Other Assets			17
Note 7: Borrowings			17
Note 8: Variable Interest Entities			20
Note 9: Accumulated Other Comprehensive Loss			21
Note 10: Income Taxes			22
Note 11: Commitments and Contingencies			22
Note 12: Segment and Geographic Information			23
Note 13: Goodwill and Identifiable Intangible Assets			23
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3 – Quantitative and Qualitative Disclosures About Market Risk			48
Item 4 – Controls and Procedures			48

PART II – OTHER INFORMATION			49
Item 1 – Legal Proceedings			49
Item 1A – Risk Factors			49
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 5 – Other Information			49
Item 6 – Exhibits			50
SIGNATURES			51

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PART I – FINANCIAL INFORMATION

Item 1—Condensed Consolidated Financial Statements (Unaudited)

ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Financial Condition

(In Thousands, Except Par Value Amounts)

(Unaudited)


	June 30, 2024		December 31, 2023
Assets
Cash and cash equivalents	$	250,621	$	158,364
Investment in receivable portfolios, net	3,583,322		3,468,432
Property and equipment, net	102,291		103,959
Other assets	277,799		293,256
Goodwill	602,811		606,475
Total assets	$	4,816,844	$	4,630,486
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities	$	197,555	$	189,928
Borrowings	3,455,130		3,318,031
Other liabilities	176,032		185,989
Total liabilities	3,828,717		3,693,948
Commitments and contingencies (Note 11)
Equity:
Convertible preferred stock, $0.01 par value, 5,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value, 75,000 shares authorized, 23,691 and 23,545 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively	237		235
Additional paid-in capital	13,257		11,052
Accumulated earnings	1,104,591		1,049,171
Accumulated other comprehensive loss	(129,958)		(123,920)
Total stockholders’ equity	988,127		936,538
Total liabilities and stockholders’ equity	$	4,816,844	$	4,630,486

The following table presents certain assets and liabilities of consolidated variable interest entities (“VIEs”) included in the condensed consolidated statements of financial condition above. The liabilities in the table below can only be settled from assets in the respective VIEs. Creditors of the VIEs do not have recourse to the general credit of the Company. See “Note 8: Variable Interest Entities” for additional information on the Company’s VIEs.


	June 30, 2024		December 31, 2023
Assets
Cash and cash equivalents	$	26,714	$	24,472
Investment in receivable portfolios, net	774,104		717,556
Other assets	9,294		19,358
Liabilities
Accounts payable and accrued liabilities	2,266		1,854
Borrowings	466,267		494,925
Other liabilities	7		2,452

See accompanying notes

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ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Income

(In Thousands, Except Per Share Amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues
Revenue from receivable portfolios	$	321,930	$	301,184	$	637,782	$	596,858
Changes in recoveries	5,754		(3,486)		(6,655)		(12,987)
Total debt purchasing revenue	327,684		297,698		631,127		583,871
Servicing revenue	21,107		21,008		41,486		43,593
Other revenues	6,494		4,338		11,058		8,210
Total revenues	355,285		323,044		683,671		635,674
Operating expenses
Salaries and employee benefits	106,608		95,855		210,792		199,705
Cost of legal collections	64,249		57,150		122,970		111,251
General and administrative expenses	36,779		34,529		73,020		72,494
Other operating expenses	30,845		26,349		61,212		53,905
Collection agency commissions	7,504		10,387		14,938		18,537
Depreciation and amortization	7,461		10,702		15,309		21,572

Total operating expenses	253,446		234,972		498,241		477,464
Income from operations	101,839		88,072		185,430		158,210
Other expense
Interest expense	(61,376)		(49,983)		(117,141)		(96,818)

Other income (expense), net	2,047		(1,755)		4,713		(23)
Total other expense	(59,329)		(51,738)		(112,428)		(96,841)
Income before income taxes	42,510		36,334		73,002		61,369
Provision for income taxes	(10,329)		(10,029)		(17,582)		(16,438)
Net income	$	32,181	$	26,305	$	55,420	$	44,931

Earnings per share:
Basic	$	1.35	$	1.11	$	2.33	$	1.90
Diluted	$	1.34	$	1.08	$	2.28	$	1.83

Weighted average shares outstanding:
Basic	23,883		23,670		23,834		23,610
Diluted	24,097		24,280		24,282		24,611

See accompanying notes

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ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, In Thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net income	$	32,181	$	26,305	$	55,420	$	44,931
Other comprehensive (loss) income, net of tax:
Change in unrealized (loss) gain on derivative instruments:
Unrealized (loss) gain on derivative instruments	(731)		1,962		4,744		(6,091)
Income tax effect	(1,088)		253		(3,773)		1,129
Unrealized (loss) gain on derivative instruments, net of tax	(1,819)		2,215		971		(4,962)
Change in foreign currency translation:


Unrealized (loss) gain on foreign currency translation	(1,146)		17,532		(7,292)		33,540
Income tax effect	443		(279)		283		(662)
Unrealized (loss) gain on foreign currency translation, net of tax	(703)		17,253		(7,009)		32,878
Other comprehensive (loss) income, net of tax:	(2,522)		19,468		(6,038)		27,916
Total comprehensive income	$	29,659	$	45,773	$	49,382	$	72,847

See accompanying notes

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ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Equity

(Unaudited, In Thousands)


	Three Months Ended June 30, 2024
	Common Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive Loss		Total Equity
	Shares	Par
Balance as of March 31, 2024	23,687	$	237	$	8,648	$	1,072,410	$	(127,436)	$	953,859

Net income	—	—		—		32,181		—		32,181
Other comprehensive loss, net of tax	—	—		—		—		(2,522)		(2,522)
Issuance of share-based awards, net of shares withheld for employee taxes	4	—		(28)		—		—		(28)
Stock-based compensation	—	—		4,637		—		—		4,637

Balance as of June 30, 2024	23,691	$	237	$	13,257	$	1,104,591	$	(129,958)	$	988,127


	Three Months Ended June 30, 2023
	Common Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive (Loss)/ Income		Total Equity
	Shares	Par
Balance as of March 31, 2023	23,482	$	235	$	—	$	1,274,289	$	(90,368)	$	1,184,156
Net income	—	—		—		26,305		—		26,305
Other comprehensive income, net of tax	—	—		—		—		19,468		19,468
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes	3	—		33		—		—		33
Stock-based compensation	—	—		3,873		—		—		3,873



Balance as of June 30, 2023	23,485	$	235	$	3,906	$	1,300,594	$	(70,900)	$	1,233,835


	Six Months Ended June 30, 2024
	Common Stock			Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive Loss		Total Equity
	Shares	Par
Balance as of December 31, 2023	23,545	$	235	$	11,052	$	1,049,171	$	(123,920)	$	936,538

Net income	—	—		—		55,420		—		55,420
Other comprehensive loss, net of tax	—	—		—		—		(6,038)		(6,038)
Issuance of share-based awards, net of shares withheld for employee taxes	146	2		(5,789)		—		—		(5,787)
Stock-based compensation	—	—		7,994		—		—		7,994

Balance as of June 30, 2024	23,691	$	237	$	13,257	$	1,104,591	$	(129,958)	$	988,127

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	Six Months Ended June 30, 2023
	Common Stock			Additional Paid-In Capital		Accumulated Earnings (Loss)		Accumulated Other Comprehensive (Loss)/ Income		Total Equity
	Shares	Par
Balance as of December 31, 2022	23,323	$	233	$	—	$	1,278,210	$	(98,816)	$	1,179,627
Net income	—	—		—		44,931		—		44,931
Other comprehensive income, net of tax	—	—		—		—		27,916		27,916
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes	162	2		(6,322)		—		—		(6,320)
Stock-based compensation	—	—		7,925		—		—		7,925
Purchase of capped call options, net of tax effect	—	—		(13,865)		—		—		(13,865)
Unwind of the existing capped call options	—	—		28,542		—		—		28,542
Settlement of convertible notes	—	—		(12,374)		(22,547)		—		(34,921)
Balance as of June 30, 2023	23,485	$	235	$	3,906	$	1,300,594	$	(70,900)	$	1,233,835

See accompanying notes

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ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, In Thousands)


	Six Months Ended June 30,
	2024		2023
Operating activities:
Net income	$	55,420	$	44,931
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,309		21,572

Other non-cash interest expense, net	7,941		8,660
Stock-based compensation expense	7,994		7,925
Deferred income taxes	(810)		2,785

Changes in recoveries	6,655		12,987
Other, net	3,357		985
Changes in operating assets and liabilities
Other assets	(25,896)		(35,730)

Accounts payable, accrued liabilities and other liabilities	16,727		(1,492)
Net cash provided by operating activities	86,697		62,623
Investing activities:

Purchases of receivable portfolios, net of put-backs	(566,960)		(544,721)
Collections applied to investment in receivable portfolios	419,833		342,020
Purchases of asset held for sale	(212)		(24,645)
Purchases of property and equipment	(14,251)		(9,503)
Other, net	29,704		22,603
Net cash used in investing activities	(131,886)		(214,246)
Financing activities:
Payment of loan and debt refinancing costs	(17,201)		(8,151)
Proceeds from credit facilities	393,455		444,805
Repayment of credit facilities	(1,234,189)		(259,843)
Proceeds from senior secured notes	1,000,000		—
Repayment of senior secured notes	(19,540)		(19,540)

Proceeds from issuance of convertible senior notes	—		230,000
Repayment of exchangeable senior notes	—		(192,457)
Proceeds from convertible hedge instruments, net	—		10,050

Other, net	16,967		(14,238)
Net cash provided by financing activities	139,492		190,626
Net increase in cash and cash equivalents	94,303		39,003
Effect of exchange rate changes on cash and cash equivalents	(2,046)		1,956
Cash and cash equivalents, beginning of period	158,364		143,912
Cash and cash equivalents, end of period	$	250,621	$	184,871

Supplemental disclosure of cash information:
Cash paid for interest	$	80,945	$	79,167
Cash paid for taxes, net of refunds	42,365		36,822
Supplemental schedule of non-cash investing activities:
Investment in receivable portfolios transferred to real estate owned	$	3,098	$	6,244

See accompanying notes

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ENCORE CAPITAL GROUP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies

Encore Capital Group, Inc. (“Encore”), through its subsidiaries (collectively with Encore, the “Company”), is an international specialty finance company providing debt recovery solutions and other related services for consumers across a broad range of financial assets. The Company purchases portfolios of defaulted consumer receivables at deep discounts to face value and manages them by working with individuals as they repay their obligations and work toward financial recovery. Defaulted receivables are consumers’ unpaid financial obligations to credit originators, including banks, credit unions, consumer finance companies and commercial retailers. Defaulted receivables may also include receivables subject to bankruptcy proceedings. The Company also provides debt servicing and other portfolio management services to credit originators for non-performing loans in Europe.

Through Midland Credit Management, Inc. and its domestic affiliates (collectively, “MCM”), the Company is a market leader in portfolio purchasing and recovery in the United States. Through Cabot Credit Management Limited (“CCM”) and its subsidiaries and European affiliates (collectively, “Cabot”), the Company is one of the largest credit management services providers in Europe and the United Kingdom. These are the Company’s primary operations.

The Company also has investments and operations in Latin America and Asia-Pacific, which the Company refers to as “LAAP.”

Financial Statement Preparation and Presentation

The accompanying interim condensed consolidated financial statements have been prepared by the Company, without audit, in accordance with the instructions to the Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnotes necessary for a fair presentation of its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).

In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the Company’s condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

The preparation of condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company’s condensed financial statements and the accompanying notes. Actual results could materially differ from those estimates.

Basis of Consolidation

The condensed consolidated financial statements have been prepared in conformity with GAAP and reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. The Company also consolidates variable interest entities (“VIEs”) for which it is the primary beneficiary. The primary beneficiary has both (a) the power to direct the activities of the VIE that most significantly affect the entity’s economic performance, and (b) either the obligation to absorb losses or the right to receive benefits. Refer to “Note 8: Variable Interest Entities” for further details. All intercompany transactions and balances have been eliminated in consolidation.

Translation of Foreign Currencies

The condensed financial statements of certain of the Company’s foreign subsidiaries are measured using their local currency as the functional currency. Assets and liabilities of foreign operations are translated into U.S. dollars using period-end exchange rates, and revenues and expenses are translated into U.S. dollars using average exchange rates in effect during each period. The resulting translation adjustments are recorded as a component of other comprehensive income or loss. Equity accounts are translated at historical rates, except for the change in retained earnings during the year which is the result of the income statement translation process. Intercompany transaction gains or losses at each period end arising from subsequent measurement of balances for which settlement is not planned or anticipated in the foreseeable future are included as translation adjustments and recorded within other comprehensive income or loss. Translation gains or losses are the material components of accumulated other comprehensive income or loss and are reclassified to earnings upon the substantial sale or liquidation of investments in foreign operations.

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Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within the segment measure of profit or loss. This guidance will be applied retrospectively and is effective for annual reporting periods in fiscal years beginning after December 15, 2023, and interim reporting periods in fiscal years beginning after December 31, 2024. This ASU may result in additional required disclosures when adopted. The Company is currently evaluating the provisions of this ASU and the impact on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions and applies to all entities subject to income taxes. The new standard is effective for annual periods beginning after December 15, 2024. This ASU may result in additional required disclosures when adopted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

Note 2: Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period.

The number of shares used to calculate the diluted earnings per share is computed by using the basic weighted-average number of common shares outstanding plus any dilutive potential common shares outstanding during the period, except when their effect is anti-dilutive. Dilutive potential common shares include outstanding stock based awards, and the dilutive effect of the convertible and exchangeable senior notes, if applicable.

A reconciliation of shares used in calculating earnings per basic and diluted shares follows (in thousands, except per share amounts):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net income	$	32,181	$	26,305	$	55,420	$	44,931
Shares:
Total weighted-average basic shares outstanding	23,883		23,670		23,834		23,610
Dilutive effect of stock-based awards	19		117		109		204
Dilutive effect of convertible and exchangeable senior notes	195		493		339		797

Total weighted-average dilutive shares outstanding	24,097		24,280		24,282		24,611

Basic earnings per share	$	1.35	$	1.11	$	2.33	$	1.90
Diluted earnings per share	$	1.34	$	1.08	$	2.28	$	1.83

There were no anti-dilutive employee stock options outstanding during the three and six months ended June 30, 2024 and 2023.

Note 3: Fair Value Measurements

Fair value is defined as the price that would be received upon sale of an asset or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., the “exit price”). The Company uses a fair value hierarchy that prioritizes the inputs used in valuation techniques to measure fair value into three broad levels. The following is a brief description of each level:

•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

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•Level 3: Unobservable inputs, including inputs that reflect the reporting entity’s own assumptions.

The Company’s cash and cash equivalents, certain other assets, accounts payable and accrued liabilities, and other liabilities approximate their fair values due to their short-term nature, which are determined to be a Level 1 measurement.

Financial Instruments Required To Be Carried At Fair Value

Financial assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):


	Fair Value Measurements as of June 30, 2024
	Level 1		Level 2		Level 3		Total
Assets
Foreign currency exchange contracts	$	—	$	873	$	—	$	873
Interest rate cap contracts	—		3,417		—		3,417
Interest rate swap agreements	—		138		—		138

Liabilities
Interest rate swap agreements	—		(6,570)		—		(6,570)
Cross-currency swap agreements	—		(41,631)		—		(41,631)


	Fair Value Measurements as of December 31, 2023
	Level 1		Level 2		Level 3		Total
Assets
Interest rate cap contracts	$	—	$	16,950	$	—	$	16,950
Cross-currency swap agreements	—		361		—		361
Liabilities
Interest rate swap agreements	—		(22,510)		—		(22,510)
Cross-currency swap agreements	—		(28,039)		—		(28,039)

Derivative Contracts:

The Company uses derivative instruments to manage its exposure to fluctuations in interest rates and foreign currency exchange rates. Fair values of these derivative instruments are estimated using industry standard valuation models. These models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves, foreign currency exchange rates, and forward and spot prices for currencies. The Company’s derivative agreements are subject to underlying agreements with master netting arrangements, which provide for the right of offset in the event of default or in the event of bankruptcy of either party to the transactions. The Company reports its assets and liabilities subject to these arrangements on a gross basis for certain derivative agreements.

Non-Recurring Fair Value Measurement:

Certain assets are measured at fair value on a nonrecurring basis. These assets include real estate-owned assets classified as held for sale at the lower of their carrying value or fair value less cost to sell. The fair value of the assets held for sale and estimated selling expenses were determined at the time of initial recognition and in each reporting period using Level 3 measurements based on appraised values using market comparables. The fair value estimate of the assets held for sale was approximately $55.3 million and $70.6 million as of June 30, 2024 and December 31, 2023, respectively.

Financial Instruments Not Required To Be Carried At Fair Value

The table below summarizes fair value estimates for the Company's financial instruments that are not required to be carried at fair value. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.

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The carrying amounts in the following table are included in the condensed consolidated statements of financial condition as of June 30, 2024 and December 31, 2023 (in thousands):


	June 30, 2024				December 31, 2023
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets
Investment in receivable portfolios, net	$	3,583,322	$	3,629,834	$	3,468,432	$	3,515,651
Financial Liabilities
Global senior secured revolving credit facility	—		—		816,880		816,880
Encore private placement notes	9,770		9,771		29,310		28,922
Senior secured notes(1)	2,620,254		2,610,487		1,649,621		1,598,636


Convertible senior notes due October 2025	100,000		117,761		100,000		136,403
Convertible senior notes due March 2029	230,000		208,582		230,000		226,794
Cabot securitisation senior facility	322,557		322,557		324,646		324,646
U.S. facility	150,000		150,000		175,000		175,000
Other borrowings	66,058		66,058		24,904		24,904

_______________________

(1)Carrying amount represents historical cost, adjusted for any related debt discount.

Investment in Receivable Portfolios:

The fair value of investment in receivable portfolios is measured using Level 3 inputs by discounting the estimated future cash flows generated by the Company’s proprietary forecasting models. The key inputs include the estimated future gross cash flow, average cost to collect, and discount rate. The determination of such inputs requires significant judgment, including assessing the assumed market participant’s cost structure, its determination of whether to include fixed costs in its valuation, its collection strategies, and determining the appropriate weighted average cost of capital. The Company evaluates the use of these key inputs on an ongoing basis and refines the data as it continues to obtain better information from market participants in the debt recovery and purchasing business.

Borrowings:

The Company’s convertible notes, senior secured notes and private placement notes are carried at historical cost, adjusted for the applicable debt discount. The fair value estimate for the convertible notes incorporates quoted market prices using Level 2 inputs. The fair value of the senior secured notes and private placement notes is estimated using widely accepted valuation techniques, including discounted cash flow analyses using available market information on discount and borrowing rates with similar terms, maturities, and credit ratings. Accordingly, the Company used Level 2 inputs for these debt instrument fair value estimates.

The carrying value of the Company’s senior secured revolving credit facility, securitisation senior facility, U.S. facility, and other borrowings approximates fair value due to the use of current market rates that are repriced frequently, which are determined to be a Level 2 measurement.

Note 4: Derivatives and Hedging Instruments

The Company may periodically enter into derivative financial instruments to manage risks related to interest rates and foreign currency. Certain of the Company’s derivative financial instruments qualify for hedge accounting treatment.

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The following table summarizes the fair value of derivative instruments as recorded in the Company’s condensed consolidated statements of financial condition (in thousands):


	June 30, 2024			December 31, 2023
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate cap contracts	Other assets	$	2,635	Other assets	$	14,564
Interest rate swap agreements	Other assets	138		—	—
Interest rate swap agreements	Other liabilities	(6,570)		Other liabilities	(22,510)
Cross-currency swap agreements	—	—		Other assets	361
Cross-currency swap agreements	Other liabilities	(41,631)		Other liabilities	(28,039)
Derivatives not designated as hedging instruments:
Interest rate cap contracts	Other assets	782		Other assets	2,386
Foreign currency exchange contracts	Other assets	873		—	—

Derivatives Designated as Hedging Instruments

The Company may periodically enter into interest rate swap agreements and interest rate cap contracts to reduce its exposure to fluctuations in interest rates on variable interest rate debt and their impact on earnings and cash flows. Under the swap agreements, the Company receives floating interest rate payments and makes interest payments based on fixed interest rates. Under the cap contracts, the Company receives floating interest rate payments and makes interest payments based on capped interest rates. The Company designates its interest rate swap and interest rate cap instruments as cash flow hedges at inception.

The Company uses cross-currency swap agreements to manage foreign currency exchange risk by converting fixed-rate Euro-denominated borrowings and fixed-rate GBP-denominated borrowings including periodic interest payments and the payment of principal at maturity to fixed-rate USD debt. The cross-currency swap agreements are accounted for as fair value hedges.

The following tables summarize the terms of the derivative instruments designated as hedging instruments as recorded in the Company’s consolidated statements of financial condition:

June 30, 2024

Effective date

Maturity Date

Hedge Designation

Notional Amount

Receive Floating Rate Index

Interest rate cap contracts

2021 Cap(1)

November 2021

September 2024

Cash flow hedge

$316.2 million

SONIA

2024 Cap

September 2024

September 2026

Cash flow hedge

$322.6 million

SONIA

Interest rate swap agreements

2023 Euro IR Swap

October 2023

January 2028

Cash flow hedge

$107.4 million

3-month EURIBOR

2024 Euro IR Swaps

June 2024

January 2028

Cash flow hedge

$445.7 million

3-month EURIBOR

2023 SOFR IR Swaps

November 2023

October 2026

Cash flow hedge

$150.0 million

1-month SOFR CME Term

Cross-currency swap agreements

2020 Euro Swaps

September 2020

October 2025

Fair value hedge

$375.9 million

—

2023 GBP Swaps

July 2023

February 2026

Fair value hedge

$379.5 million

—

______________________

(1)The total notional amount of the 2021 Cap was $442.7 million, of which $316.2 million was hedge designated and $126.5 million was not hedge designated as of June 30, 2024.

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December 31, 2023

Effective date

Maturity Date

Hedge Designation

Notional Amount

Receive Floating Rate Index

Interest rate cap contracts

2019 Cap

January 2020

June 2024

Cash flow hedge

$441.5 million

3-month EURIBOR

2021 Cap(1)

November 2021

September 2024

Cash flow hedge

$318.3 million

SONIA

2024 Cap

September 2024

September 2026

Cash flow hedge

$324.6 million

SONIA

Interest rate swap agreements

2023 Euro IR Swap

October 2023

January 2028

Cash flow hedge

$110.4 million

3-month EURIBOR

2024 Euro IR Swaps

June 2024

January 2028

Cash flow hedge

$458.1 million

3-month EURIBOR

2023 SOFR IR Swaps

November 2023

October 2026

Cash flow hedge

$150.0 million

1-month SOFR CME Term

Cross-currency swap agreements

2020 Euro Swaps

September 2020

October 2025

Fair value hedge

$386.3 million

—

2023 GBP Swaps

July 2023

February 2026

Fair value hedge

$381.9 million

—

_______________________

(1)The total notional amount of the 2021 Cap was $445.6 million, of which $318.3 million was hedge designated and $127.3 million was not hedge designated as of December 31, 2023.

The Company expects to reclassify approximately $2.5 million of net derivative gain from OCI into earnings relating to its cash flow designated derivatives within the next 12 months.

The following tables summarize the effects of derivatives designated as hedging instruments in the Company’s condensed consolidated financial statements (in thousands):


Derivatives Designated as Hedging Instruments	Gain (Loss) Recognized in OCI				Location of Gain (Loss) Reclassified from OCI into Income (Loss)	Gain (Loss) Reclassified from OCI into Income
	Three Months Ended June 30,					Three Months Ended June 30,
	2024		2023			2024		2023


Interest rate swap agreements	$	6,199	$	—	Interest expense	$	655	$	—
Interest rate cap contracts	(5,777)		3,423		Interest expense	(664)		(391)
Cross-currency swap agreements	(4,289)		(1,896)		Interest expense	(1,757)		(1,395)
					Other (expense) income	(1,370)		1,351


Derivatives Designated as Hedging Instruments	Gain (Loss) Recognized in OCI				Location of Gain (Loss) Reclassified from OCI into Income (Loss)	Gain (Loss) Reclassified from OCI into Income
	Six Months Ended June 30,					Six Months Ended June 30,
	2024		2023			2024		2023


Interest rate swap agreements	$	17,273	$	—	Interest expense	$	1,195	$	—
Interest rate cap contracts	(11,828)		(3,501)		Interest expense	(1,376)		(841)
Cross-currency swap agreements	(17,299)		170		Interest expense	(3,537)		(2,903)
					Other (expense) income	(12,880)		6,504

Derivatives Not Designated as Hedging Instruments

From time to time, the Company enters into currency exchange forward contracts to reduce the effects of currency exchange rate fluctuations. These derivative contracts generally mature within one to six months and are not designated as hedge instruments for accounting purposes. The Company also holds an interest rate cap contract, the 2021 Cap, that was partially hedge designated. The gains or losses on these unhedged derivative contracts are recognized in other income or expense based on the changes in fair value.

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The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s condensed consolidated statements of income for the three and six months ended June 30, 2024 and 2023 (in thousands):


Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivative	Amount of Gain Recognized in Income
		Three Months Ended June 30,				Six Months Ended June 30,
		2024		2023		2024		2023
Interest rate cap contract	Other income	$	79	$	—	$	274	$	—
Foreign currency exchange contract	Other income	873		—		873		—

Note 5: Investment in Receivable Portfolios, Net

The Company’s purchased portfolios of loans are grossed-up to their face value with an offsetting allowance and noncredit discount allocated to the individual receivables as the unit of account is at the individual loan level. Since each loan is deeply delinquent and deemed uncollectible at the individual loan level, the Company applies its charge-off policy and fully writes-off the amortized costs (i.e., face value net of noncredit discount) of the individual receivables immediately after purchasing the portfolio. The Company then records 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 ultimately equals the amount paid for a portfolio purchase and presented as “Investment in receivable portfolios, net” in the Company’s condensed consolidated statements of financial condition. The discount rate is an effective interest rate (or “purchase EIR”) based on the purchase price of the portfolio and the expected future cash flows at the time of purchase.

Receivable portfolio purchases are aggregated into pools based on similar risk characteristics. Examples of risk characteristics include financial asset type, collateral type, size, interest rate, date of origination, term, and geographic location. The Company’s static pools are typically grouped into credit card, purchased consumer bankruptcy, and mortgage portfolios. The Company further groups these static pools by geographic location. Once a pool is established, the portfolios will remain in the designated pool unless the underlying risk characteristics change. The purchase EIR of a pool will not change over the life of the pool even if expected future cash flows change.

Revenue is recognized for each static pool over the economic life of the pool. 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 also includes all revenue from zero basis portfolio (“ZBA”) collections, and

(2) Changes in recoveries, which includes

(a) Recoveries above or 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. 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).

The Company measures expected future recoveries based on historical experience, current conditions, reasonable and supportable forecasts, and other quantitative and qualitative factors. Factors that may change the expected future recoveries may include both internal as well as external factors. Internal factors include operational performance, such as capacity and the productivity of the Company’s collection staff. External factors include new laws or regulations, new interpretations of existing laws or regulations, and macroeconomic conditions. The Company continues to reassess its expected future recoveries in each reporting period.

Investment in receivable portfolios, net consists of the following as of the dates presented (in thousands):



	June 30, 2024		December 31, 2023
Amortized cost	$	—	$	—
Negative allowance for expected recoveries	3,583,322		3,468,432
Balance, end of period	$	3,583,322	$	3,468,432

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The following table summarizes the changes in the balance of investment in receivable portfolios, net during the periods presented (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Balance, beginning of period	$	3,531,387	$	3,214,792	$	3,468,432	$	3,088,261
Negative allowance for expected recoveries - current period purchases(1)	278,692		274,325		574,406		550,756
Collections applied to investment in receivable portfolios, net (2)	(224,798)		(175,338)		(419,833)		(342,020)
Changes in recoveries (3)	5,754		(3,486)		(6,655)		(12,987)
Put-backs and recalls	(3,099)		(4,229)		(7,446)		(6,035)

Disposals and transfers to real estate owned	(1,053)		(5,139)		(3,098)		(6,244)
Foreign currency translation adjustments	(3,561)		30,061		(22,484)		59,255
Balance, end of period	$	3,583,322	$	3,330,986	$	3,583,322	$	3,330,986

_______________________

(1)The table below provides the detail on the establishment of negative allowance for expected recoveries of portfolios purchased during the periods presented:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Purchase price	$	278,692	$	274,325	$	574,406	$	550,756
Allowance for credit losses	649,642		690,501		1,294,156		1,350,145
Amortized cost	928,334		964,826		1,868,562		1,900,901
Noncredit discount	1,211,961		1,049,233		2,467,754		2,054,454
Face value	2,140,295		2,014,059		4,336,316		3,955,355
Write-off of amortized cost	(928,334)		(964,826)		(1,868,562)		(1,900,901)
Write-off of noncredit discount	(1,211,961)		(1,049,233)		(2,467,754)		(2,054,454)
Negative allowance	278,692		274,325		574,406		550,756
Negative allowance for expected recoveries - current period purchases	$	278,692	$	274,325	$	574,406	$	550,756

(2)Collections applied to investment in receivable portfolios, net, is calculated as follows during the periods presented:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Cash Collections	$	546,728	$	476,522	$	1,057,615	$	938,878
Less - amounts classified to revenue from receivable portfolios	(321,930)		(301,184)		(637,782)		(596,858)
Collections applied to investment in receivable portfolios, net	$	224,798	$	175,338	$	419,833	$	342,020

(3)Changes in recoveries is calculated as follows during the periods presented, where recoveries include cash collections, put-backs and recalls, and other cash-based adjustments:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Recoveries above (below) forecast	$	27,443	$	(477)	$	28,296	$	(15,835)
Changes in expected future recoveries	(21,689)		(3,009)		(34,951)		2,848
Changes in recoveries	$	5,754	$	(3,486)	$	(6,655)	$	(12,987)

Recoveries above or below forecast represent over and under-performance in the reporting period, respectively. Collections during the three and six months ended June 30, 2024, over-performed the forecasted collections by approximately $27.4 million and $28.3 million, respectively. Collections during the three and six months ended June 30, 2023, under-performed the forecasted collections by approximately $0.5 million and $15.8 million, respectively.

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When reassessing the forecasts of expected lifetime recoveries during the three and six months ended June 30, 2024, management considered, among other factors, historical and current collection performance, changes in consumer behavior, and the macroeconomic environment. Management believes that most of the current period collections over-performance was due to changes in timing of the estimated remaining collections, and therefore reduced the respective estimated remaining collections accordingly. These reductions, when discounted to present value, resulted in a net negative change in expected future recoveries of approximately $21.7 million, and $35.0 million for the three and six months ended June 30, 2024, respectively. During the three and six months ended June 30, 2023, the Company recorded approximately $3.0 million in net negative change and $2.8 million in net positive change in expected future period recoveries, respectively.

Note 6: Other Assets

Other assets consist of the following (in thousands):


	June 30, 2024		December 31, 2023
Operating lease right-of-use assets	$	60,378	$	67,019
Real estate owned	55,253		70,590
Prepaid expenses	36,543		32,910
Income tax deposits	30,927		8,735
Deferred tax assets, net	15,060		17,277
Service fee receivables	11,292		9,080
Derivative instruments	4,428		17,311

Other	63,918		70,334
Total	$	277,799	$	293,256

Note 7: Borrowings

The Company is in compliance in all material respects with all covenants under its financing arrangements as of June 30, 2024. The components of the Company’s consolidated borrowings were as follows (in thousands):


	June 30, 2024		December 31, 2023
Global senior secured revolving credit facility	$	—	$	816,880


Encore private placement notes	9,770		29,310
Senior secured notes	2,624,620		1,654,989
Convertible senior notes	330,000		330,000

Cabot securitisation senior facility	322,557		324,646
U.S. facility	150,000		175,000
Other	66,058		24,904
Finance lease liabilities	1,778		2,818
	3,504,783		3,358,547
Less: debt discount and issuance costs, net of amortization	(49,653)		(40,516)
Total	$	3,455,130	$	3,318,031

Encore is the parent of the restricted group for the Global Senior Facility, the Senior Secured Notes and the Encore Private Placement Notes, each of which is guaranteed by the same group of material Encore subsidiaries and secured by the same collateral, which represents substantially all of the assets of those subsidiaries.

Global Senior Secured Revolving Credit Facility

In September 2020, the Company entered into a multi-currency senior secured revolving credit facility agreement (as amended and restated, the “Global Senior Facility”). As of June 30, 2024, the Global Senior Facility provided for a total committed facility of $1,203.0 million that matures in September 2027 and includes the following key provisions:

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•Interest at Term SOFR (or EURIBOR for any loan drawn in Euro or a rate based on SONIA for any loan drawn in British Pound), with a Term SOFR (or EURIBOR or SONIA) floor of 0.00%, plus a margin of 2.50%, plus in the case of Term SOFR borrowings, a credit adjustment spread of 0.10%;

•An unused commitment fee of 0.40% per annum, payable quarterly in arrears;

•A restrictive covenant that limits the LTV Ratio (defined in the Global Senior Facility) to 0.75 in the event that the Global Senior Facility is more than 20% utilized;

•A restrictive covenant that limits the SSRCF LTV Ratio (defined in the Global Senior Facility) to 0.275;

•A restrictive covenant that requires the Company to maintain a Fixed Charge Coverage Ratio (as defined in the Global Senior Facility) of at least 2.0;

•Additional restrictions and covenants which limit, among other things, the payment of dividends and the incurrence of additional indebtedness and liens; and

•Standard events of default which, upon occurrence, may permit the lenders to terminate the Global Senior Facility and declare all amounts outstanding to be immediately due and payable.

The Global Senior Facility is secured by substantially all of the assets of the Company and the guarantors. Pursuant to the terms of an intercreditor agreement entered into with respect to the relative positions of (1) the Global Senior Facility, any super priority hedging liabilities and the Encore Private Placement Notes (collectively, “Super Senior Liabilities”) and (2) the Senior Secured Notes, Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.

As of June 30, 2024, we had no borrowings under the Global Senior Facility. The weighted average interest rate of the Global Senior Facility was 7.85% and 7.51% for the three months ended June 30, 2024 and 2023, respectively, and 7.88% and 7.30% for the six months ended June 30, 2024 and 2023, respectively. Available capacity under the Global Senior Facility, after taking into account applicable debt covenants, was approximately $1,203.0 million as of June 30, 2024.

Encore Private Placement Notes

In August 2017, Encore entered into $325.0 million in senior secured notes with a group of insurance companies (the “Encore Private Placement Notes”). As of June 30, 2024, $9.8 million of the Encore Private Placement Notes remained outstanding. The Encore Private Placement Notes bear an annual interest rate of 5.625%, mature in August 2024 and require quarterly principal payments of $9.8 million. The covenants and material terms for the Encore Private Placement Notes are substantially similar to those for the Global Senior Facility.

Senior Secured Notes

The following table provides a summary of the Company’s senior secured notes (the “Senior Secured Notes”) ($ in thousands):


	June 30, 2024		December 31, 2023		Issue Currency	Maturity Date	Interest Payment Dates	Interest Rate


2025 Notes	$	375,859	$	386,324	EUR	Oct 15, 2025	Apr 15, Oct 15	4.875	%
2026 Notes	379,479		381,937		GBP	Feb 15, 2026	Feb 15, Aug 15	5.375	%
2028 Notes	316,233		318,280		GBP	Jun 1, 2028	Jun 1, Dec 1	4.250	%
2028 Floating Rate Notes	553,049		568,448		EUR	Jan 15, 2028	Jan 15, Apr 15, Jul 15, Oct 15	EURIBOR +4.250%(1)
2029 Notes	500,000		—		USD	Apr 1, 2029	Apr 1, Oct 1	9.250	%
2030 Notes	500,000		—		USD	May 15, 2030	May 15, Nov 15	8.500	%
	$	2,624,620	$	1,654,989

_______________________

(1)Interest rate is based on three-month EURIBOR (subject to a 0% floor) plus 4.250% per annum, resets quarterly.

The Senior Secured Notes are secured by the same collateral as the Global Senior Facility and the Encore Private Placement Notes. The guarantees provided in respect of the Senior Secured Notes are pari passu with each such guarantee given in respect of the Global Senior Facility and Encore Private Placement Notes. Subject to the intercreditor agreement described above under the section “Global Senior Secured Revolving Credit Facility,” Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.

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The 2028 Floating Rate Notes had a weighted average interest rate of 8.16% and 7.28% for the three months ended June 30, 2024 and 2023, respectively, and 8.18% and 6.83% for the six months ended June 30, 2024 and 2023, respectively. As discussed in “Note 4: Derivatives and Hedging Instruments,” the Company uses interest rate derivative contracts to manage its risk related to the interest rate fluctuation in its variable interest rate bearing debt. The weighted average interest rate of the 2028 Floating Rate Notes including the effect of the hedging instruments was 5.47% and 4.36% for the three months ended June 30, 2024 and 2023, respectively, and 5.24% and 4.34% for the six months ended June 30, 2024 and 2023, respectively.

In March 2024, Encore issued $500.0 million in aggregate principal amount of 9.250% Senior Secured Notes due April 2029 at an issue price of 100.000% (the “2029 Notes”). Interest on the 2029 Notes is payable semi-annually, in arrears, on April 1 and October 1 of each year, commencing on October 1, 2024. The Company used the proceeds from this offering to pay down $493.0 million of the drawings under its Global Senior Facility and to pay certain transaction fees and expenses incurred in connection with the offering of the 2029 Notes.

In May 2024, Encore issued $500.0 million in aggregate principal amount of 8.500% Senior Secured Notes due May 2030 at an issue price of 100.000% (the “2030 Notes”). Interest on the 2030 Notes is payable semi-annually, in arrears, on May 15 and November 15 of each year, commencing on November 15, 2024. The Company used the proceeds from this offering to pay down $448.7 million of the drawings under its Global Senior Facility, pay certain transaction fees and expenses incurred in connection with the offering of the 2030 Notes and for general corporate purposes.

Convertible Notes

The following table provides a summary of the principal balance, maturity date and interest rate for the Company’s convertible senior notes (the “Convertible Notes”) ($ in thousands):


	June 30, 2024		December 31, 2023		Maturity Date	Interest Payment Dates	Interest Rate


2025 Convertible Notes	$	100,000	$	100,000	Oct 1, 2025	Apr 1, Oct 1	3.250	%
2029 Convertible Notes	230,000		230,000		Mar 15, 2029	Mar 15, Sep 15	4.000	%
	$	330,000	$	330,000

In order to reduce the risk related to the potential dilution and/or the potential cash payments the Company may be required to make in the event that the market price of the Company’s common stock becomes greater than the conversion prices of the Convertible Notes, the Company may enter into hedge programs that increase the effective conversion price for the Convertible Notes. In connection with the issuance of the 2029 Convertible Notes, the Company entered into privately negotiated capped call transactions that effectively raised the conversion price of the 2029 Convertible Notes from $65.89 to $82.69. These hedging instruments have been determined to be indexed to the Company’s own stock and meet the criteria for equity classification. The Company recorded the cost of the hedge instruments as a reduction in additional paid-in capital, and does not recognize subsequent changes in fair value of these financial instruments in its condensed consolidated financial statements. The Company did not hedge the 2025 Convertible Notes.

Certain key terms related to the convertible features as of June 30, 2024 are listed below ($ in thousands, except conversion price):


	2025 Convertible Notes		2029 Convertible Notes
Initial conversion price	$	40.00