ENCORE CAPITAL GROUP
2023
Annual Report
Better Solutions. Better Life.
Contents
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Encore’s Mission, Vision and Values ...........................2
Financial Highlights ...................................................11
Who We Are ................................................................3
Environmental, Social and Governance (ESG) .........12
Letter to Shareholders .................................................4
Our Leadership and Board of Directors .....................13
Our Proven Three Pillar Strategy ................................8
Investor and Shareholder Services Information ........14
Our Financial Priorities ................................................9
Appendix....................................................................15
Capital Allocation .......................................................10
Encore Capital Group 2023 Form 10-K .....................18
Encore’s Mission, Vision and Values
OUR MISSION
Creating pathways
to economic freedom
OUR VISION
We help make credit accessible
by partnering with consumers
to restore their financial health
OUR VALUES
WE CARE
We put people first and engage
with honesty, empathy, and respect
WE FIND A BETTER WAY
We deliver our best in everything we
do, find ways to make a positive
difference, and achieve impactful results
WE ARE INCLUSIVE
AND COLLABORATIVE
We embrace our differences and work
together to ensure every individual
can thrive
TO FIND OUT MORE, VISIT: encorecapital.com/mvv/
2
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT Who We Are
Encore enables the functioning of a healthy credit ecosystem
By purchasing non-performing loan (NPL) portfolios, we return capital to banks, enabling further lending and
thus playing a key role in the consumer credit ecosystem. Our two largest operating units are Midland Credit
Management (U.S.) and Cabot Credit Management (U.K. and Europe).
7,400
global colleagues
9
countries where we operate
25+
years in business
$13B
Amount of capital Encore has returned
to the financial credit ecosystem through
portfolio purchases since inception
RETURN OF CAPITAL TO CONSUMER CREDIT ECOSYSTEM
Issuers of
consumer
debt
Debt is
charged
off
Issuers sell
charged-off
debt
Encore
purchases
and collects on
charged-off debt
RETURN OF CAPITAL TO CONSUMER CREDIT ECOSYSTEM
Encore engages with
consumers to resolve their debt
Consumer-
centric
approach
Operational
expertise
Proprietary
advanced
analytics
3
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT Letter to Shareholders
Dear Fellow Shareholders,
For the debt buying industry, 2023 was characterized by starkly
different business conditions in the U.S. and U.K./Europe, our
primary markets. A number of key attributes specific to our
industry impact our markets and define business conditions
including the supply of charged-off portfolios, competitive
dynamics, portfolio pricing, portfolio returns and consumer
behavior. In addition, industry performance is affected by macro
drivers such as interest rates, unemployment and inflation.
Higher interest rates, for example, have driven increased funding
costs, which are now impacting all participants in the industry.
The net effect of all of these contributing factors has been that
the U.S. market has grown rapidly and is offering strong returns
while growth in the U.K. and European markets has been slower
with lower returns amidst a more competitive environment.
For Encore, our disciplined approach to purchasing portfolios and the flexibility of our global funding structure have
allowed us to redirect our capital deployment to higher return opportunities in the U.S., consistent with our well-
established strategic focus. As a result, we have emerged from 2023 in a much stronger competitive position and a
clear industry leader. Let me elaborate further on the characteristics of and our strategies in these markets.
Outstanding U.S. Revolving Credit and U.S. Credit Card Charge-Off Rate
$1.31T
+$214B
Source: U.S. Federal Reserve
4
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT Reports from the U.S. Federal Reserve show that credit card balances continue to set new all-time records on
a monthly basis, powered in part by strong consumer spending. In addition, we continue to see steadily rising
delinquencies and charge-offs, resulting in increased availability of charged-off portfolios for purchase from U.S.
banks at increasingly attractive returns. We believe a higher share of this charge-off growth is coming from
issuers that are active in near-prime and subprime segments, as well as from newer players such as fintech
lenders. We also believe strong growth in lending during the pandemic years is now exhibiting higher delinquency
rates when compared to older origination vintages. As a result, the supply of charged-off portfolios in the U.S.
reached a record level in 2023 and we expect it to continue to grow in 2024. In addition, portfolio pricing steadily
improved during 2023, driven by stable competitive behavior that effectively incorporated the recent higher cost
of capital. As a result, our U.S. business, Midland Credit Management (MCM), continues to thrive and is currently
the growth and earnings engine for Encore.
MCM portfolio purchases were a record $815 million in 2023, up 47% compared to the prior year, at attractive
returns. This increased portfolio purchasing will drive Encore’s collections growth in 2024. In terms of consumer
behavior, we are observing a more normal, stable environment that is similar to the pre-pandemic years, most
notably in terms of payment plan performance.
In contrast to the U.S., supply growth in the U.K. has been much more muted. Credit card outstandings are still
not yet back to pre-pandemic levels as banks in the U.K., unlike those in the U.S., did not start to meaningfully
increase lending during the pandemic years. And even today, U.K. charge-offs remain at low levels. In addition,
the competitive environment faced by our business in the U.K. and Europe, Cabot Credit Management, continues
to be stiffer than the U.S., as many of our competitors appear to have been slow in fully adjusting pricing to higher
funding costs. Several debt buyers in the U.K. and Europe are struggling, and we expect market consolidation
or refocusing of strategies to occur in the coming years — similar to what transpired in the U.S. during the
challenging supply/returns cycle several years ago. Against this backdrop, we remain disciplined and patient,
choosing to deploy at currently low levels until the returns in Cabot’s markets become more attractive. In terms
of consumer behavior, with the U.K. economy now in recession, we believe a weakening in consumer confidence
is impacting one-time settlements, though retention rates on existing payment plans remain stable. Our Cabot
business is focused on improving collections operations and managing the cost structure, which will enable us
to eventually capitalize on opportunities when market conditions improve. As a result, our Cabot business has
become a smaller part of Encore’s overall operational and financial results.
As we reflect on our ability to focus our investments toward the highest return opportunities, I would like to highlight
one of Encore’s key competitive advantages — our global funding structure. As you may remember, we implemented
this global funding structure in September 2020 leveraging the bond complex and bank facility that Cabot had
previously implemented. This facility provides us tremendous flexibility in allocating capital to the countries and
markets of our choice. Throughout 2023 and continuing into 2024, we are allocating the majority of our capital
deployment toward U.S. purchases, where returns are highest, consistent with our well-established focus on returns.
In fact, 76% of our portfolio purchasing in 2023 was allocated to the U.S. market compared to 56% five years ago.
5
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT Our reported financial results in 2023 were not indicative of the underlying strength of our business due to certain
non-cash charges, the largest of which was a $238 million goodwill impairment. This charge was the result of
our annual test for goodwill and was primarily driven by persistently low purchasing by our Cabot business and a
sustained decline in debt purchasing industry valuations. This charge has no impact on our liquidity, on our ability
to purchase portfolios, on our capability to collect on portfolios we have already purchased, or on our outlook for
the business.
In addition, our revenues in 2023 were reduced by $83 million of changes in recoveries stemming from the
Current Expected Credit Losses (CECL) accounting methodology. In contrast, our revenues during 2022 were
increased by $93 million due to CECL impacts. For our industry, CECL uses collections forecasts to determine
quarterly revenue. Small variations in actual performance versus forecast or even smaller changes in forecasts
themselves can lead to significant volatility in revenues. However, it is important to understand that over the
full life cycle of a portfolio, revenue will always be equal to total portfolio collections less purchase price.
We believe with the passage of time after the pandemic and its effects, the CECL-related volatility will likely
recede. In addition, we will continue to enhance our forecasting and related processes.
Despite the fact that we have a fairly predictable business in terms of operational metrics such as collections and
cash generation, the volatility in our GAAP earnings results since the adoption of the CECL accounting standard
has been a source of frustration for us — and for investors. We hear you. In fact, we learn a great deal from the
investment community, constantly listening to feedback and conducting periodic investor perception studies,
which we refreshed in 2023. Based on this feedback, we plan to continue to provide information each quarter that
clearly identifies the impact on our results from CECL-related items.
To further emphasize the fundamental predictability of our business and our positive outlook for 2024, we have
chosen to provide guidance on certain key metrics. In comparison to 2023, in 2024 we expect:
• Portfolio purchasing to exceed 2023 total of $1,074 million1
• Collections growth of approximately 8% to over $2,000 million1
While the external environment over the past several years has been dynamic, the core of our business remains
unchanged: we help consumers resolve their debts so they can regain the freedom to focus on what is important
to them. We do that by engaging in honest, empathetic and respectful conversations. Our goal is to understand
their challenges, determine the options that might work best for them, and agree on a plan to move forward. We
do so through Encore’s talented team around the world who embody our culture and values every day as we help
consumers regain their financial freedom.
1 In constant currency
6
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT
We also recognize that consumer preferences are shifting toward more online and digital interactions, as is
evident in every part of the consumer financial services industry. In the second half of 2023, more than 90% of
consumers who responded to marketing correspondence from MCM responded via our online portal. Accordingly,
we continue to invest significantly in technology and digital capabilities which we believe, given our scale, will
maintain or even enhance our competitive advantage. These efforts have allowed our MCM business to double
the proportion of consumers who make their first payment using our digital channel over the past four years, to
33% at the end of 2023. Over the same period, Cabot‘s U.K. debt purchasing business has grown the proportion
of new purely digital payment plans from 18% to 32%.
Looking ahead, consistent with our Mission, Vision and Values, we stand ready to support consumers to help
them work through their financial situations and resolve their debts. As one of the world’s largest debt purchasing
companies, we expect consumers will likely need us now more than ever as credit card outstandings and charge-
offs continue to grow. Equally important to investing in portfolios that deliver strong returns, we will continue to
invest in our people and culture, which together form the foundation for our consumer-focused capabilities that
lead to superior operating performance.
I remain highly optimistic about Encore’s future as we are well positioned to capitalize on the opportunities
directly in front of us in the markets we serve. In particular, we see a robust pipeline in the U.S. consisting of
strong supply at attractive returns. Put simply — our MCM business in the U.S. is the best performing debt buying
and collections platform in the world’s largest and most valuable market. We also remain consistently committed
to our three-pillar strategy, delivering strong returns while maintaining our balance sheet strength and allocating
capital in accordance with our priorities. I am confident that our long-term focus and disciplined approach will
enhance the long-term value of each Encore share.
Sincerely,
Ashish Masih
President and Chief Executive Officer,
Encore Capital Group, Inc.
7
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT Our Proven Three Pillar Strategy
We play a critical role in the consumer credit ecosystem by assisting in the resolution of unpaid debts, which are an
expected outcome of the lending business model. We look to purchase NPL portfolios at attractive cash returns, using
the lowest cost funding available to us. For each portfolio, we strive to meet or exceed our collections expectations while
ensuring the highest levels of compliance and consumer focus, all while maintaining an efficient cost structure. Within
this consumer credit ecosystem, our business strategy is straightforward: choose valuable markets to operate in, build
and continuously enhance our competitive advantage in chosen markets and maintain a strong balance sheet.
MARKET FOCUS
We focus on markets with: (1) large, consistent flows of portfolios; (2) strong regulatory frameworks that require
significant financial and operational capabilities; (3) a high degree of sophistication and data availability; and (4) an
ability to generate stable, long-term returns. Markets like the United States and the United Kingdom have been our
core focus and provide the kind of stable, sophisticated operating environments in which Encore can thrive. We would
highlight that consumer behaviors are somewhat different in these markets, leading to a longer collection cycle in the
U.K. than in the U.S. As a result, we receive the benefit of faster cash generation in the U.S, but lower reinvestment
risk in the U.K., helping to diversify our business thanks to our significant presence in these two markets.
Building off our prior investments in other European markets, we have also been scaling up our presence in Spain
and France. We will continue to learn from our R&D investments while we explore opportunities in both our existing
and new markets.
COMPETITIVE ADVANTAGE
We have developed competitive advantages that provide the foundation for
strong, consistent results. This starts with a core belief that treating people
with empathy and building trust-based relationships are critical to solving
consumers’ debt challenges. We embed compliance in everything we do
so that we can be effective in highly regulated markets; strive to operate
an efficient and low-cost platform; and leverage proprietary large datasets
and analytics capabilities that we believe help us accurately price risk and
optimize collections. Over the years we have increased our investments in
digital capabilities (e.g., web, mobile, chat), which provide consumers
choices on how to interact with us as a complement to other channels, such
as our call center and direct mail communication. As consumer adoption
Technology
Innovation
Consumer
Focus
Competitive
Advantage
Scale &
Efficiency
Data &
Analytics
Regulatory
&
Compliance
Excellence
of digital technologies increases, our collections through digitally enabled interactions also continue to rise, which is
good for consumers as well as for Encore given the lower cost and scalable nature of digital collection methods.
BALANCE SHEET STRENGTH
A disciplined approach to managing our balance sheet is the backbone of our resilience and key to maximizing
shareholder value. Our global funding structure provides us financial flexibility, access to multiple funding markets,
and a lower cost of funds, all of which will help us capitalize on the opportunities available in 2024 and beyond.
8
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT Our Financial Priorities
We remain committed to a consistent set of financial priorities that we established long ago. We expect to benefit
from our strong balance sheet as the highly anticipated growth in market supply has arrived in the U.S., and we are
ready. We will continue to be good stewards of your capital and, as always, will maintain our focus on returns in
order to build long-term shareholder value.
BALANCE SHEET OBJECTIVES
CAPITAL ALLOCATION PRIORITIES
Preserve our financial flexibility
Target leverage1 between
2.0x and 3.0x
Maintain a strong BB
debt rating
Portfolio purchases at
attractive returns
Strategic M&A
Share repurchases
Deliver strong ROIC through the credit cycle
1 Leverage defined as Net Debt ÷ (last twelve months Adjusted EBITDA + LTM collections applied to principal balance), which we also refer to as our
Leverage Ratio.
9
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT
Capital Allocation
CAPITAL ALLOCATION PRIORITIES
Portfolio purchases at
attractive returns
Strategic M&A
Share repurchases
PORTFOLIO PURCHASES
(in $M)
• Our portfolio purchases were reduced in 2020, 2021 and the first half of 2022 because portfolio supply in our
key markets was significantly impacted during the pandemic as many consumers who had fewer opportunities to
spend discretionary funds chose to reduce their credit card balances and eliminate their debts.
• Since mid-2022, our deployments in the United States have increased, reflecting increased supply, and have
been at strong returns and have added significant estimated remaining collections (ERC).
• For the past five years, Cabot has deployed lower levels of capital. Most recently, we have constrained Cabot’s
purchases in favor of higher returns in the U.S.
U.S. PORTFOLIO PURCHASES AND RESULTING ERC ADDED
(in $M)
1 ERC (Estimated Remaining Collections) Added represents a calculated approximation of the amount of ERC added for a given year based on the change in
Total Estimated Gross Collections (as defined in the 10-K) for the year. See the table “Purchase Price Multiple” in the Company’s 10-K filing for additional detail.
10
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT
Financial Highlights
GAAP NET INCOME (LOSS)
(in $M)
GAAP EARNINGS (LOSS) PER SHARE
COLLECTIONS
(in $B)
CASH GENERATION2
(in $B)
RETURN ON INVESTED CAPITAL
Pre-Tax ROIC3
LEVERAGE
1 Impacted by goodwill impairment of $238M or $10.06/share and impairment of intangible assets of $19M or $0.79/share.
2 Cash generation defined as Adjusted EBITDA + collections applied to principal balance. See appendix for reconciliation of Adjusted EBITDA to GAAP net income.
3 See appendix for calculation of Pre-Tax ROIC.
4 Leverage Ratio defined as Net Debt / (Adjusted EBITDA + collections applied to principal balance). See appendix for reconciliation of Net Debt to GAAP
Borrowings and reconciliation of Adjusted EBITDA to GAAP net income.
11
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT Environmental, Social and Governance (ESG)
Our ESG strategy is underpinned by our commitment to transparency and is centered around caring for and uplifting
people — our consumers, colleagues and communities. Guided by our Mission to create pathways to economic
freedom and our Values, we put consumers at the heart of our business as we help them restore their financial
health. We pride ourselves in fostering a culture where our colleagues can thrive, grounded in respect, inclusion and
opportunity. Additionally, we also recognize the role we must play to support and strengthen our communities around
the globe, with our passionate colleagues driving this important work forward.
Encore’s ESG Pillars
Our five key ESG pillars help us focus on the issues that
matter most to our business and stakeholders.
CONSUMERS
Our consumers are at the heart of our business.
We’re committed to promoting a strong culture of engaging
consumers with respect, honesty, and empathy, and keeping
customer service and compliance at the core of our business
strategy. We support consumers through our empathetic service
model, ensuring consumers experiencing hardships have the right
support, and that all interactions are driven by our Mission, Vision
and Values and with an emphasis on compliance and ethics.
COLLEAGUES
We support and value our people. We foster a culture of
respect, inclusion and empowerment by promoting an environment
where our people can thrive and grow their careers. We cultivate
an intentional culture in our offices by extending personal and
professional development opportunities that take a holistic
approach to employee well-being.
COMMUNITY
We work together to strengthen our community. We encourage
colleagues to participate in community service and support
them through corporate matching programs, paid time off for
volunteering activities, our annual give-back campaign,
company-sponsored volunteer opportunities, and corporate
giving and partnerships.
ENVIRONMENT
We make a positive impact on the environment. We believe in
being good stewards of the environments in which we operate. We
address our environmental footprint through sustainable business
operations and through partnerships in our communities that help
drive impact.
OPERATING RESPONSIBLY
We operate responsibly. We are committed to conducting business
in a responsible manner and we strive to have our global operations
be fully compliant with all relevant laws and regulations. Our ethical
standards are consistently high and we hold all of our colleagues to
the same rigorous standards of regulatory compliance.
ESG Highlights:
• 91% of MCM consumers who
participated in a post-call survey rated
their experience with their account
manager as positive with a score of 8 or
9 (on a 0-9 scale) in 2023.
• In 2023, 84% of Cabot UK consumers
from our debt purchasing business who
participated in a post-call survey rated
their experience as positive with a score
of 9 or 10 (on a 1-10 scale).
• The Institute of Customer Service
(ICS) that analyzes interactions and
experiences between consumers and our
U.K. operations annually, assigned us a
score of 80.2, above the financial sector
average of 80.0 in 2023, and several
points higher than the U.K. all-sector
average of 76.6.
• Encore Capital Group designated as
Great Place to Work-Certified™ in
France, India, Ireland, Portugal, Spain
and the United States.
• Second global give-back campaign
resulted in colleagues donating
thousands of essential items such
as food, clothes and personal care
products benefiting 18 organizations
around the world.
• Continuing our commitment to foster an
inclusive workplace, Encore launched
the Pride Network employee resource
group for LGBTQ+ colleagues, joining
the Black Employee Network and
Women@Encore&Allies.
• Encore’s MCM office in India earned
LEED Gold Certification.
12
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT
Our Leadership and Board of Directors
EXECUTIVE LEADERSHIP TEAM
BOARD OF DIRECTORS
Ashish Masih
President,
Chief Executive Officer
Joined Encore in 2009
Andrew Asch
Senior Vice President,
General Counsel
Joined Encore in 2010
Ryan Bell
President,
Midland Credit Management, Inc.
Joined Encore in 2011
Steve Carmichael
Senior Vice President,
Chief Risk, Strategy and Compliance Officer
Joined Encore in 2021
Jonathan Clark
Executive Vice President,
Chief Financial Officer
Joined Encore in 2014
Monique Dumais-Chrisope
Senior Vice President,
Chief Information Officer
Joined Encore in 2019
Tracy Ting
Senior Vice President,
Chief Human Resources Officer
Joined Encore in 2019
John Yung
President, International and
Cabot Credit Management
Joined Encore in 2015
Michael P. Monaco
Chairman, Director
Served since 2014
William C.Goings
Director
Served since 2022
Ash Gupta
Director,
Chair of the Compensation Committee
Served since 2015
Wendy G. Hannam
Director,
Chair of the Risk Committee
Served since 2015
Jeffrey A. Hilzinger
Director
Served since 2019
Angela A. Knight CBE
Director,
Chair of the Nominating and
Corporate Governance Committee
Served since 2019
Ashish Masih
Director,
President and Chief Executive Officer
Served since 2017
Laura Newman Olle
Director
Served since 2014
Richard P. Stovsky
Director,
Chair of the Audit Committee
Served since 2018
13
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT Investor and Shareholder
Services Information
HEADQUARTERS
Encore Capital Group, Inc.
350 Camino de la Reina, Suite 100
San Diego, CA 92108
877-445-4581
TRANSFER AGENT AND REGISTRAR
Equiniti Trust Company, LLC (“EQ”)
PO Box 500
Newark, NJ 07101
STOCK EXCHANGE LISTING
Our common stock is listed on NASDAQ
under the symbol ECPG.
INVESTOR RELATIONS CONTACT
Bruce Thomas
Vice President, Global Investor Relations
bruce.thomas@encorecapital.com
This Annual Report contains certain forward-looking
information within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking
statements are based on current expectations and involve
inherent risks and uncertainties that could cause actual
outcomes and results to differ materially from current
ANNUAL REPORT ON FORM 10-K
expectations. Please see section “Item 1A—Risk Factors”
A copy of this report is available at
encorecapital.com/sec-filings/annual-reports/
in the Form 10-K for the year ended Dec. 31, 2023 for a
discussion of the risks, uncertainties and assumptions
that could cause our actual results to differ from those
contained in our forwardlooking statements.
14
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT
Appendix:
Calculation of Net Debt and ROIC
Non-GAAP Disclosure
Management believes that the presentation of the non-GAAP financial information below 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. 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.
Net Debt
Net Debt is GAAP borrowings adjusted for debt issuance costs and debt discounts, cash and cash equivalents and
client cash. Net Debt is a measure commonly used by lenders to our industry to represent the net borrowings of market
participants, and is also used regularly by lenders and others as the numerator in industry leverage calculations.
As of December 31,
(in thousands)
GAAP Borrowings
2023
2022
2021
2020
2019
$ 3,318,031 $ 2,898,821 $ 2,997,331
$ 3,281,634 $ 3,513,197
Debt issuance costs and debt discounts
40,516
42,404
58,350
91,859
73,237
Cash & cash equivalents
(158,364)
(143,912)
(189,645)
(189,184)
(192,335)
Client cash1
Net Debt
16,019
17,772
29,316
20,298
24,964
$ 3,216,202 $ 2,815,085 $ 2,895,352
$ 3,204,607 $ 3,419,063
1 Client cash is cash that was collected on behalf of, and remains payable to, third party clients.
Pre-Tax Return on Invested Capital (“ROIC”)
Management believes ROIC is a useful financial measure for investors in evaluating the efficient and effective use of
capital, and is an important component of long-term shareholder return. Management uses ROIC as a measure to
monitor and evaluate operating performance relative to our invested capital. ROIC is calculated as last twelve months
adjusted income from operations, divided by our average invested capital. Adjusted income from operations excludes
acquisition, integration and restructuring related expenses, amortization of certain acquired intangible assets and other
charges or gains that are not indicative of ongoing operations. Average invested capital is defined as the aggregate of
average Net Debt and average GAAP equity and is calculated as the sum of current and prior period ending amounts
divided by two.
15
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT (in thousands except percentages)
2023
2022
2021
2020
2019
Last Twelve Months Ended December 31,
Numerator
Income from Operations
Adjustments:1
Acquisition, integration and
restructuring related expenses2
Expenses related to certain acquired
intangible assets3
CFPB settlement fees4
Goodwill impairment5
Impairment of intangible assets5
Net gain on fair value adjustments
to contingent considerations6
$ 16,535
$ 462,174
$ 633,272
$ 533,562
$ 446,345
7,952
1,213
5,681
154
7,049
3,509
5,999
7,417
7,010
7,017
---
238,200
18,726
---
---
---
4,075
---
---
15,009
---
---
---
---
---
---
---
10,718
---
(2,300)
Adjusted income from operations
$ 284,922
$ 473,461
$ 646,370
$ 555,735
$ 468,829
Denominator
Average Net Debt
Average equity
$ 3,015,644 $ 2,855,219 $ 3,049,979
$ 3,311,835 $ 3,429,624
1,058,082
1,182,444
1,202,669
1,122,741
922,547
Total average invested capital
$ 4,073,726 $ 4,037,663 $ 4,252,648
$ 4,434,576 $ 4,352,171
Pre-Tax ROIC
7.0%
11.7%
15.2%
12.5%
10.8%
1 Adjustments below are to adjust GAAP income from operations and accordingly do not include any amounts related to other income and expense.
2 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.
3 We have acquired intangible assets, such as trade names and customer relationships, as a result of our acquisition of debt solution service
providers. These intangible assets are valued at the time of the acquisition and amortized over their estimated lives. We believe that amortization of
acquisition-related intangible assets, especially the amortization of an acquired company’s trade names and customer relationships, is the result of
pre-acquisition activities. In addition, the amortization of these acquired intangibles is a non-cash static expense that is not affected by operations
during any reporting period.
4 Amount represents a charge resulting from the Stipulated Judgment with the CFPB. We have adjusted for this amount because we believe it
is not indicative of ongoing operations; therefore, adjusting for it enhances comparability to prior periods, anticipated future periods, and our
competitors’ results.
5 During the fourth quarter of 2023, we recorded a non-cash goodwill impairment charge of $238.2 million and an impairment of intangible assets of
$18.7 million. In addition, we recorded a non-cash impairment of intangible assets of $4.1 million in the year ended December 31, 2022. The sale of
Baycorp resulted in a goodwill impairment charge during the year ended December 31, 2019. We believe these non-cash impairment charges are
not indicative of ongoing operations, therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and
our competitors’ results.
6 Amount represents the net gain recognized as a result of fair value adjustments to contingent considerations that were established for our
acquisitions of debt solution service providers in Europe. We have adjusted for this amount because we do not believe this is indicative of
ongoing operations.
16
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT Reconciliation of Adjusted EBITDA to GAAP Net Income
Last Twelve Months Ended December 31,
(in thousands)
2023
2022
2021
2020
2019
GAAP net (loss) income, as reported
($ 206,492)
$ 194,564
$ 351,201
$ 212,524
$ 168,909
Interest expense
201,877
153,308
169,647
209,356
217,771
Loss on extinguishment of debt
---
---
9,300
40,951
Interest income
Provision for income taxes
Depreciation and amortization
Net gain on derivative instruments1
CFPB settlement fees2
(4,746)
26,228
41,737
(3,170)
---
(1,774)
116,425
46,419
---
---
(1,738)
85,340
50,079
---
---
Stock-based compensation expense
13,854
15,402
18,330
(2,397)
70,374
42,780
---
15,009
16,560
8,989
(3,693)
32,333
41,029
---
---
12,557
Acquisition, integration and restructuring
related expenses3
Loss on sale of Baycorp4
Goodwill impairment4,5
Impairment of intangible assets5
Net gain on fair value adjustments
to contingent considerations6
Adjusted EBITDA
Collections applied to principal balance7
7,401
1,213
20,559
4,962
7,049
---
238,200
18,726
---
---
---
4,075
---
---
---
---
---
---
---
---
---
12,489
10,718
---
(2,300)
$ 333,615 $ 529,632 $ 702,718 $ 610,119
$ 505,851
$ 776,280 $ 635,262 $ 843,087
$ 740,350
$ 765,748
1 Amount represents a gain recognized on derivative instruments that are not designated as hedging instruments or gain or loss recognized on
derivative instruments upon dedesignation of hedge relationships. We adjust for this amount because we believe the gain or loss on derivative
contracts is not indicative of ongoing operations.
2 Amount represents a charge resulting from the Stipulated Judgment with the CFPB. We have adjusted for this amount because we believe it is
not indicative of ongoing operations; therefore, adjusting for it enhances comparability to prior periods, anticipated future periods, and our
competitors’ results.
3 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.
4 The sale of Baycorp resulted in a goodwill impairment charge of $10.7 million and a loss on sale of $12.5 million during the year ended December
31, 2019. We believe the goodwill impairment charge and the loss on sale are not indicative of ongoing operations, therefore adjusting for these
expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
5 During the fourth quarter of 2023, we recorded a non-cash goodwill impairment charge of $238.2 million and a non-cash impairment of intangible
assets of $18.7 million. In addition, we recorded a non-cash impairment of intangible assets of $4.1 million in the year ended December 31,
2022. We believe these non-cash impairment charges are not indicative of ongoing operations, therefore adjusting for these expenses enhances
comparability to prior periods, anticipated future periods, and our competitors’ results.
6 Amount represents the net gain recognized as a result of fair value adjustments to contingent considerations that were established for our
acquisitions of debt solution service providers in Europe. We have adjusted for this amount because we do not believe this is indicative of
ongoing operations.
7 For periods prior to January 1, 2020, amount represents (a) gross collections from receivable portfolios less the sum of (b) revenue from receivable
portfolios and (c) allowance charges or allowance reversals on receivable portfolios. For periods subsequent to January 1, 2020 amount represents
(a) gross collections from receivable portfolios less (b) debt purchasing revenue. For consistency with the Company debt covenant reporting, for
periods subsequent to June 30, 2020, the collections applied to principal balance also includes proceeds applied to basis from sales of REO assets
and related activities; prior period amounts have not been adjusted to reflect this change as such amounts were immaterial.
17
ENCORE CAPITAL GROUP 2023 ANNUAL REPORT ENCORE CAPITAL GROUP
2023
Form 10-K
Better Solutions. Better Life.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________________________________________________
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023 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
(State or other jurisdiction of incorporation or organization)
48-1090909
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 Par Value Per Share
Trading Symbol(s)
ECPG
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 past 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 (§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. (Check one):
Large accelerated filer
Emerging growth company
☒
☐
Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $1,120.9 million at June 30, 2023, based on
the closing price of the common stock of $48.62 per share on such date, as reported by Nasdaq.
The number of shares of our Common Stock outstanding at February 15, 2024, was 23,545,102.
Documents Incorporated by Reference
Portions of the registrant’s definitive proxy statement in connection with its annual meeting of stockholders to be held in 2024 are incorporated by
reference in Items 10, 11, 12, 13, and 14 of Part III of this Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which proxy statement
will be filed no later than 120 days after the close of the registrant’s fiscal year December 31, 2023.
TABLE OF CONTENTS
Table of Contents
PART I
Item 1—Business
Item 1A—Risk Factors
Item 1B—Unresolved Staff Comments
Item 1C—Cybersecurity
Item 2—Properties
Item 3—Legal Proceedings
Item 4—Mine Safety Disclosures
PART II
Item 5—Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6—[Reserved]
Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A—Quantitative and Qualitative Disclosures about Market Risk
Item 8—Financial Statements and Supplementary Data
Item 9—Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A—Controls and Procedures
Item 9B—Other Information
Item 9C—Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
PART III
Item 10—Directors, Executive Officers and Corporate Governance
Item 11—Executive Compensation
Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13—Certain Relationships and Related Transactions, and Director Independence
Item 14—Principal Accountant Fees and Services
PART IV
Item 15—Exhibits and Financial Statement Schedules
Item 16—Form 10-K Summary
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Table of Contents
Our Business
PART I
Item 1—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 primarily 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 obligations 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 in Europe.
Through Midland Credit Management, Inc. and its domestic affiliates (collectively, “MCM”) we are 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”) we are one of the largest credit management services providers in
Europe and the United Kingdom. These are our primary operations.
We also have additional international investments and operations as we have explored new asset classes and geographies
including: (1) an investment in Encore Asset Reconstruction Company (“EARC”) in India and (2) an investment in portfolio in
Mexico. We refer to these additional international operations as our Latin America and Asia-Pacific (“LAAP”) operations.
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 the United States
and United Kingdom and strengthening and developing our business in the rest of Europe. As a result, descriptions of our
operations in Part I - Item 1 of this Form 10-K will focus primarily on MCM (United States) and Cabot (Europe) operations.
Throughout this Annual Report on Form 10-K, when we refer to our United States operations, we include accounts
originated in the United States that are serviced through our operations centers in the United States, India and Costa Rica. When
we refer to our international operations, we are referring to accounts originated outside of the United States. Those accounts are
generally serviced in the country of origin. When we refer to Europe, we are referring to Europe including the United Kingdom.
Company Information
We were incorporated in Delaware in 1999. In June 2013, we completed our merger with Asset Acceptance Capital Corp.,
which was another leading provider of debt recovery solutions in the United States. In July 2013, by acquiring a majority
ownership interest in the indirect holding company of CCM, we acquired control of CCM. In February 2014, CCM acquired
Marlin Financial Group Limited, a leading acquirer of non-performing consumer debt in the United Kingdom. In August 2014,
we acquired Atlantic Credit & Finance, Inc., which was a market leader in the United States in buying and collecting on freshly
charged-off debt. In June 2015, CCM expanded in the United Kingdom by acquiring Hillesden Securities Ltd and its
subsidiaries (“dlc”). In November 2017, CCM completed the acquisition of Wescot Credit Services Limited (“Wescot”), a
leading UK contingency debt collection and BPO services company. In July 2018, we completed the purchase of all of the
outstanding equity of CCM not owned by us. As a result, CCM became our wholly owned subsidiary.
Our headquarters is located in San Diego, California 92108 and our telephone number is (877) 445-4581. Our website
address is www.encorecapital.com. The site provides access, free of charge, to relevant investor related information, such as our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those
reports that are filed with or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Sections 13(a) or 15(d)
of the Securities Exchange Act of 1934, press releases, featured articles, an event calendar, and frequently asked questions. SEC
filings are available on our Internet site as soon as reasonably practicable after being filed with, or furnished to, the SEC. Also
available on our website are our Standards of Business Conduct and charters for the committees of our Board of Directors. We
intend to disclose any amendment to, or waiver of, a provision of our Standards of Business Conduct on our website. The
content of our Internet site is not incorporated by reference into this Annual Report on Form 10-K. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC (http://www.sec.gov).
Our Competitive Advantages
Analytic Strength. We believe that success in our business depends on our ability to establish and maintain an information
and data advantage. Leveraging our database of financially-distressed consumers, our in-house team of statisticians, business
analysts, and software programmers have developed, and continually enhance, proprietary behavioral and valuation models,
custom software applications, and other business tools that guide our portfolio purchases.
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We have been able to leverage many years of data, insights, modeling and operational experience. Each year we purchase
significant amounts of credit bureau and customized consumer data that describe account level and macroeconomic factors
related to credit, savings, and payment behavior. This robust data accumulation from our collection channels and other sources
supports our direct mail, call center and digital collection efforts and our market-leading proprietary scorecards for legal
placements. We leverage these and other powerful statistical models to drive each collection activity.
We have made significant progress in developing our digital collection strategies, which we continue to optimize along
with our collections websites. In developing our digital platform, we have allowed consumers to access account information,
supporting documents and perform payments online. By leveraging direct mail, email, text messaging, web chat, and search
engines, we have bolstered data accumulation and collections payments through our digital platform. Innovation and investment
in digital collection technology and speech analytics have enhanced our ability to collect and have enabled us to quickly adapt
to changes in our operating environment, as they provide real-time insights that help optimize our interaction with consumers,
as well as valuable information for training purposes.
Consumer Intelligence and Principled Intent. Across the full extent of our operations, we strive to treat consumers with
respect, compassion and integrity. From affordable payment plans to hardship solutions, we work with our consumers as they
attempt to return to financial health. We are committed to having a dialogue that is honorable and constructive and hope to play
an important and positive role in our consumers’ financial recovery. We believe that our interests and those of the financial
institutions from which we purchase portfolios are closely aligned with the interests of government agencies seeking to protect
consumer rights. To demonstrate our commitment to conducting business ethically, we developed our Consumer Bill of Rights.
Its articles govern the principled treatment we aim to provide consumers. Operating with a consumer-first approach has built
trust among consumers and issuers of consumer credit, allowing us to improve liquidation and maintain purchasing supply. We
expect to continue to invest in infrastructure and processes that support consumer advocacy and financial literacy while
promoting an appropriate balance between corporate and consumer responsibility.
At the core of our analytic approach is a focus on understanding our consumers’ willingness and ability to repay their
financial obligations. In this effort, we apply tools and methods from statistics, economics, and management science across the
full extent of our business. During portfolio valuation, we use internally developed proprietary statistical models that determine
the likelihood and expected amount of collections from each consumer within a portfolio. Subsequently, the expectations for
each account are aggregated to arrive at a portfolio-level liquidation model and a valuation for the entire portfolio is
determined. During the collection process, we apply a number of proprietary operational frameworks to match our collection
approach to an individual consumer’s predicted payment behavior.
Our data collection practices and analytics processes are designed with consumer experience in mind. Over time we have
adjusted our execution to optimize lifetime liquidation with a high-touch, focused approach. We connect with the consumer
through extended conversations and offer expanded interaction and payment options. Our analytics infrastructure provides
insights to consumer sentiment, allowing us to tailor our communication and collections efforts to each consumer. This
sustained consumer focus and other operational enhancements have led to improved liquidation effectiveness and fair consumer
treatment.
Regulatory Expertise. Both the U.S. and UK markets have established regulatory systems and compliance requirements,
which benefit scaled market participants such as Encore. Issuers of consumer debt sell charged-off receivables to a select group
of trusted buyers, further necessitating a robust compliance and regulatory framework. As the cost of compliance increases,
economies of scale are important to the provision of cost effective credit management services. Our established regulatory
framework positions us well to capture new portfolios and realize cost-efficiencies.
Although MCM and Cabot both operate in developed and established credit markets, fundamental differences exist
between the two from the standpoint of the regulatory approach being followed. The U.S. environment is governed by a rules-
based approach that details specific rules on how the company should conduct operations when interacting with consumers. The
UK landscape is principles-based in nature; outcomes and principles are set by the regulators. Parties under their purview are
responsible for determining how to appropriately achieve the stated outcomes and principles. We have strategically structured
our compliance infrastructure at MCM and Cabot to account for these key market-specific factors.
Many credit providers seek to do business with credit management companies that provide consistent, compliant and
consumer-focused services to protect the credit provider’s own reputation. Encore’s established regulatory and compliance
programs are a key differentiator that enables the Company to demonstrate its expertise to credit providers. MCM has achieved
certification from all major U.S. issuers who sell their charged-off accounts to third parties. Cabot also maintains a leading track
record of regulatory approval and was the first large UK-based credit management service company to receive full FCA
authorization.
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Table of Contents
Strong Capital Stewardship. We continue to maintain a focus on raising and deploying capital prudently to maximize the
return on our invested capital. Our operational scale and geographic diversification enable us to adjust to market trends and
deploy capital to maximize risk-adjusted returns.
Operational Scale and Cost Efficiency. We are a market leader in portfolio purchasing and recovery in the United States
and one of the largest credit management services providers in Europe. This operational scale combined with cost efficiency is
central to our purchasing and collection strategies. We also experience considerable cost advantages stemming from our scale
and focus on collecting in a cost-efficient manner. Our operations in India and Costa Rica contribute to achieving these
efficiencies.
Our Strategy
Market Focus. We continue to concentrate on our core portfolio purchasing and recovery business in the U.S. and the UK
markets in an effort to generate our highest risk-adjusted returns. We believe these markets have attractive structural
characteristics including: (1) a large and consistent flow of purchasing opportunities; (2) a strong regulatory framework that
creates advantages for firms with sufficient financial and operational capabilities; (3) a high degree of sophistication and data
availability; and (4) stable long term returns and resilience in the event of macroeconomic disruption. In addition, we are
strengthening our presence in Spain, France, and Portugal, each of which we believe shares a number of these same attractive
market characteristics.
Competitive Advantage. We strive to enhance our competitive advantages through innovation, which we expect will result
in collections growth and improved productivity. To continue generating strong risk-adjusted returns, we intend to continue
investing in analytics and technology, risk management and compliance. We will also continue investing in initiatives that
enhance our relationships with consumers, expand our digital capabilities and collections, improve liquidation rates on our
portfolios or reduce costs.
Balance Sheet Strength. We are focused on strengthening our balance sheet while delivering strong financial and
operational results. This includes increasing our cash flow generation through efficient collection operations. Depending on our
relative leverage and a number of other factors, we may apply excess cash toward reducing our debt or, in circumstances in
which we are operating within or below the lower end of our target leverage range, we may allocate capital toward share
repurchases. Furthermore, we believe our global funding structure enhances access to capital markets and provides us with
financial flexibility, particularly with respect to our ability to allocate capital to our markets with the best risk-adjusted returns.
Depending on the capital markets, we may consider additional financings to refinance debt or fund our operations and any
potential acquisitions.
Our Financial Priorities
We have tailored our strategy to optimize our ability to achieve and maintain strong returns throughout the credit cycle.
With respect to our balance sheet objectives, we strive to preserve financial flexibility and operate with leverage in a range that
we believe benefits the company, and we also target a strong debt rating.
Our capital allocation priorities include portfolio purchases at attractive returns, strategic merger and acquisition (M&A)
consideration, and the return of capital to stockholders through share repurchases.
Debt Purchasing Approach
We provide sellers of delinquent receivables liquidity and immediate value through the purchase of charged-off consumer
receivables. We believe that we are a valuable partner to these sellers given our financial strength, focus on principled intent,
and track record of financial success.
Identify purchase opportunities. We maintain relationships with various financial service providers such as banks, credit
unions, consumer finance companies, retailers, utilities companies and government agencies. These relationships frequently
generate recurring purchase opportunities. We identify purchase opportunities and secure, where possible, exclusive negotiation
rights. We believe that we are a valued partner for credit originators from whom we purchase portfolios, and our ability to
secure exclusive negotiation rights is typically a result of our strong relationships and our purchasing scale. Receivable
portfolios are typically sold either through a general auction, in which the seller requests bids from market participants, or in a
private sale where the buyer negotiates directly with a seller. The sale transaction can be either for a one-time spot purchase or
for a “forward flow” contract. A “forward flow” contract is a commitment to purchase receivables over a duration that is
typically three to twelve months, but can be longer, with specifically defined volume, frequency, and pricing. Typically, these
forward flow contracts have provisions that allow for early termination or price renegotiation should the underlying quality of
the portfolio deteriorate over time or if any particular month’s delivery is materially different than the original portfolio used to
price the forward flow contract. We also have the ability in many of our forward flow contracts to terminate after a certain
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Table of Contents
notice period. We generally attempt to secure forward flow contracts for receivables because a consistent volume of receivables
over a set duration can enable us to more accurately forecast and plan our operational needs.
Evaluate purchase opportunities using analytical models. Once a portfolio of interest is identified, we obtain detailed
information regarding the portfolio’s accounts, including certain information regarding the consumers themselves. We use this
account-level information to perform due diligence and evaluate the portfolio. We use statistical analysis and forecasting to
analyze this information to create expected future cash forecasts for the portfolio. Our collection expectations are based on,
among other things, account characteristics and credit file variables, which we use to predict a consumer’s willingness and
ability to repay their debt. Our servicing strategy and collections channel capacity are also a major determinant of collections
expectations and portfolio expected value. Additional adjustments to cash expectations are made to account for qualitative
factors that may affect the payment behavior of our consumers (such as prior collection activities or the underwriting approach
of the seller), and to ensure our valuations are aligned with our operations.
Formal approval process. Once we have determined the estimated value of the portfolio and have completed our
qualitative due diligence, we present the purchase opportunity to our investment committee, which either sets the maximum
purchase price for the portfolio based on an Internal Rate of Return (“IRR”), or declines to bid. Members of the investment
committee vary based on the type, amount, IRR and jurisdiction of the purchase opportunity, but include our Chief Executive
Officer and Chief Financial Officer for material purchases.
We believe long-term success is best achieved by combining a diversified asset sourcing approach with an account-level
scoring methodology and a disciplined evaluation process.
Collections Approach related to Debt Purchasing
MCM (United States)
We continue to expand and build upon the insight gained from previous collection activities and consumer interactions
when developing our account-level collection strategies for portfolios we acquire. We continuously refine our collection
strategy to determine the most effective approach for each account. Our current collection approaches consist of:
•
•
•
•
Direct Mail and Email. We develop innovative mail and email campaigns offering consumers payment programs,
and occasionally appropriate discounts, to encourage settlement of their accounts.
Call Centers. We maintain domestic collection call centers in Phoenix, Arizona, St. Cloud, Minnesota, Troy,
Michigan, and Roanoke, Virginia and international call centers in Gurgaon, India and San Jose, Costa Rica. Each
call center generally consists of multiple collection departments. Account managers receive extensive training and
are divided into specialty teams, each of which is supervised by a group manager. Account managers are trained to
assess our consumers’ willingness and ability to pay. They attempt to work with consumers to evaluate sources and
means of repayment to achieve a lump sum settlement or develop payment programs customized to the individual’s
ability to pay. In cases where a payment plan is developed, account managers encourage consumers to pay through
automatic payment arrangements. We continuously educate account managers to understand and apply relevant laws
and policies relating to the account manager’s daily collection activities. We have robust training and monitoring
programs to help ensure compliance with applicable laws and policies by our account managers.
Digital Collections. We have made significant progress in expanding our digital strategies to match consumer
preferences and continue to analyze and optimize our digital strategies. Currently, consumers can access their
account information, view supporting documents and make payments through our website. We leverage email, text
messaging and web chat to interact with our consumers. Account managers in our call centers are also encouraged to
make consumers aware of our digital channels including our website. We expect digital collections to increase as we
continue to develop our digital strategies and more consumers become aware of the digital channel.
Legal Action. We generally refer accounts for legal action when the consumer has not responded to our direct mail
efforts or our calls and it appears the consumer is able, but unwilling, to pay their obligations. When we decide to
pursue legal action, we place the account into our internal legal channel or refer them to our network of retained law
firms. If placed to our internal legal channel, attorneys in that channel will evaluate each account and make the final
determination whether to pursue legal action. If referred to our network of retained law firms, we rely on our law
firms’ expertise with respect to applicable debt collection laws to evaluate each account placed in that channel in
order to make the decision whether or not to pursue collection litigation. Prior to engaging an external law firm (and
throughout our engagement of any external law firm), we monitor and evaluate the firm’s compliance with
consumer credit laws and regulations, operations, financial condition, and experience, among other key criteria. The
4
Table of Contents
law firms we hire are encouraged to communicate with consumers in an attempt to collect their debts prior to
initiating litigation. We pay these law firms a contingent fee based on amounts they collect on our behalf.
Third-Party Collection Agencies. We selectively employ a strategy that uses collection agencies. Collection
agencies receive a contingent fee based on amounts they collect on our behalf. Generally, we use these agencies to
service specialized account segments.
Inactive. We strive to use our financial resources judiciously and efficiently by not deploying resources on accounts
where the prospects of collection are remote based on a consumer’s situation.
No Resale. Our policy is to not resell accounts to third parties in the ordinary course of business.
•
•
•
We expand and build upon the insight developed during our purchase process when developing our account collection
strategies for portfolios we acquire. Our proprietary consumer-level collectability analysis is the primary determinant of
whether an account is actively serviced post-purchase. The channel identification process is analogous to a decision tree where
we first differentiate those consumers who we believe are unable to pay from those who we believe are able to pay. Consumers
who we believe are financially incapable of making any payments, or are facing extenuating circumstances or hardships that
would prevent them from making payments, are excluded from our collection process. It is our practice to attempt to contact
consumers and assess each consumer’s willingness to pay through analytics, phone calls, email and/or letters. If the consumer’s
contact information is unavailable or out of date, the account is routed to our skip tracing process, which includes the use of
different skip tracing companies to provide accurate phone numbers and addresses. The consumers that engage with us are
presented with payment plans that are intended to suit their needs or are sometimes offered discounts on their obligations. For
the consumers that do not respond to our calls, emails or our letters we must then decide whether to pursue collections through
legal action. We periodically refine our collection approach to determine the most effective collection strategy to pursue for
each account.
Cabot (Europe)
In Europe, we also use direct mail and email, call centers, legal action, third-party collection agencies and digital methods
to pursue collections.
We use insights developed during our purchasing process to build account collection strategies. Our proprietary
consumer-level collectability analysis is the primary determinant of how an account will be serviced post-purchase. We
continuously refine this analysis to determine the most effective collection strategy to pursue for each account we own. We
purchase both paying portfolios, which consist of accounts where over 50% of the investment value is associated with
consumers who are already repaying some of their debt, albeit at levels that still require the debt to be written off under the
originators’ internal accounting policies, and non-paying portfolios, where 50% or more of the investment value is associated
with consumers who are not repaying some of their debt, which are higher risk and have less predictable cash flows than paying
portfolios. Paying portfolios tend to have a higher purchase price relative to face value than non-paying accounts due to the
higher expectations for collections, as well as lower anticipated collection costs. Non-paying portfolios often consist of a
substantial number of accounts without contact details and for which the vendor has made numerous unsuccessful attempts to
collect.
We employ a variety of collections strategies from the point of purchase, tailored to both the type of account and the
consumer’s financial strength. For paying accounts, we seek to engage with the consumers to transfer their payment stream to
us and understand their detailed financial situation. For non-paying accounts, we apply a segmentation framework tailoring our
communication and contact intensity in line with our assessment of their credit bureau data, the size of their debt, our belief as
to the consumer’s ability to pay their debt, and whether we have an existing relationship with them from other accounts. Where
contact is made and consumers indicate both a willingness and ability to pay, we create tailor-made payment plans to suit the
consumer’s situation. In doing so, we utilize UK regulatory protocols to assess affordability and ensure their plan is fair,
balanced and sustainable. Where we identify consumers with an ability to pay but who appear to be unwilling to pay their debt
due, we pursue a range of collections strategies, which may include litigation processes in order to stimulate engagement and
enable us to agree to a suitable plan. Scoring is applied in conjunction with manual selection criteria to determine whether
litigation might be an option, also informing any enforcement action that may be deemed most appropriate to the consumer’s
situation. Relationships with consumers are maintained through the duration of the payment plan, seeking to review plans at
least annually in order to take into account fluctuations in consumers’ financial situations. Again, scoring is used to vary the
intensity of contact effort, mirroring the likelihood of a consumer’s financial situation having changed. In the event that a
consumer breaks their plan, segmentation is used to tailor the communication and contact intensity as we seek to re-engage with
the consumer and understand the reason for the break. By understanding the reason for the break we can tailor the solutions we
recommend to rehabilitate the plan and put the consumer back on the path to financial recovery. In this way, we have built
strong relationships with our consumer base, reflected in exceptional customer service scores.
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Debt Servicing
Our debt servicing operations, which are performed by subsidiaries of Cabot, include early stage collections, business
process outsourcing and contingent collections for credit originators. We mainly provide debt servicing for consumer accounts,
but also provide services for business-to-business accounts. We believe our debt servicing operations provide us: exposure to
the oversight requirements of financial services clients that drive a continually evolving compliance agenda; access to
proprietary debt purchase opportunities; and an opportunity to support clients across the collections and recoveries lifecycle,
thereby allowing us to remain close to evolving trends.
Seasonality
Customer payment patterns in the countries in which we operate can be affected by dynamics that occur on a seasonal
basis including income tax refunds, holiday spending habits and certain employment trends. Collections in the United States
have historically tended to be somewhat higher in the first three calendar quarters than in the fourth calendar quarter.
Compliance and Enterprise Risk Management
We have established a compliance management system framework, operational procedures, and governance structures to
enable us to conduct business in accordance with applicable rules, regulations, and guidelines. Our philosophy rests on well-
established risk management principles including a model leveraging three lines of defense. Our first line of defense consists of
business lines or other operating units, whose role is to own and manage risks and associated mitigating controls. Our second
line of defense is comprised of strong compliance and enterprise risk management functions, who ensure that the business
maintains policies and procedures in compliance with existing laws and regulations, advise the business on assessing risk and
strengthening controls, and provide additional, related support. These second-line functions facilitate oversight by our
management and Board of Directors and are responsible for promoting compliance with applicable laws and regulations,
assisting in formulating and maintaining policies and procedures, and engaging in training, risk assessments, testing,
monitoring, complaint response, compliance audits and corrective actions. Our third line of defense is provided by our internal
audit function, providing independent assurance that both first and second line functions are performing their roles
appropriately within the context of our framework.
Beyond written policies, one of our core internal goals is the adherence to principled intent as it pertains to all consumer
interactions. We believe that it is in our shareholders’ and our employees’ best interest to treat all consumers with the highest
standards of integrity. Specifically, we have strict policies and a code of ethics that guide all dealings with our consumers. Our
employees undergo comprehensive training on legal and regulatory compliance, and we engage in regular call monitoring
checks, data checks, performance reviews, and other operational reviews to ensure compliance with company guidelines.
Credit originators who sell us defaulted consumer receivables routinely conduct examinations of our collection practices
and procedures and typically make reports with recommendations to us as to how they believe we can improve those practices
and procedures. We respond to these reports in the ordinary course of business and make changes to our practices and
procedures that we believe are appropriate to address any issues raised in such reports.
Competition
The consumer credit recovery industry is highly competitive in the United States, the United Kingdom and throughout
Europe. We compete with a wide range of collection and financial services companies, traditional contingency collection
agencies and in-house recovery departments. Competitive pressures affect the availability and pricing of receivable portfolios,
as well as the availability and cost of qualified recovery personnel.
When purchasing receivables, we compete primarily on the basis of price, the ease of negotiating and closing the
prospective portfolio purchases with us, our ability to obtain funding, and our reputation with respect to the quality of services
that we provide. We believe that our ability to compete effectively in this market is also dependent upon, among other things,
our relationships with credit originators and portfolio resellers of charged-off consumer receivables, and our ability to provide
quality collection strategies in compliance with applicable laws.
We believe that smaller competitors in the United States and the United Kingdom are facing difficulties in the portfolio
purchasing market because of the higher cost to operate due to increased regulatory pressure and scrutiny applied by regulators.
In addition, sellers of charged-off consumer receivables are sensitive to the reputational risks involved in the industry and are
therefore being more selective with buyers in the marketplace. We believe this favors larger participants in this market, such as
us, that are better able to adapt to these pressures.
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Government Regulation
MCM (United States)
Our U.S. debt purchasing business and collection activities are subject to federal, state, and municipal statutes, rules,
regulations, and ordinances that establish specific requirements and procedures that debt purchasers and collectors must follow
when collecting consumer accounts, including requirements to obtain and maintain relevant licenses in certain U.S. states in
which we conduct our activities. It is our policy to comply with the provisions of all applicable laws in all of our recovery
activities, including any applicable state licensing requirements. Our failure to comply with these laws or to maintain relevant
state licenses could have a material adverse effect on us to the extent that they limit our recovery activities or subject us to fines
or penalties in connection with such activities.
The federal Fair Debt Collection Practices Act (“FDCPA”) and comparable state and local laws establish specific
requirements and procedures that debt collectors must follow when communicating with consumers, including the time, place
and manner of the communications, and prohibit unfair, deceptive, or abusive debt collection practices. Pursuant to the Dodd-
Frank Wall Street Reform and Consumer Financial Protection Act of 2010 (the “Dodd-Frank Act”), Congress transferred the
Federal Trade Commission’s (“FTC”) role of administering the FDCPA to the Consumer Financial Protection Bureau
(“CFPB”), along with certain other federal statutes, and gave the CFPB authority to implement regulations under the FDCPA.
The FTC and the CFPB share enforcement responsibilities under the FDCPA.
In addition to the FDCPA, the federal laws that directly or indirectly apply to our business (including the regulations that
implement these laws) include, but are not limited to, the following:
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•
•
•
•
•
•
Dodd-Frank Act, including the Consumer Financial
Protection Act (Title X of the Dodd-Frank Act, “CFPA”)
Electronic Fund Transfer Act and the CFPB’s
Regulation E
Equal Credit Opportunity Act and the CFPB’s
Regulation B
Fair Credit Billing Act
Fair Credit Reporting Act (“FCRA”) and the CFPB’s
Regulation V
Federal Trade Commission Act (“FTCA”)
Gramm-Leach-Bliley Act and the CFPB’s Regulation P
•
•
•
•
•
•
•
Servicemembers’ Civil Relief Act
Telephone Consumer Protection Act (“TCPA”)
Truth In Lending Act and the CFPB’s Regulation Z
U.S. Bankruptcy Code
Health Insurance Portability and Accountability Act
Credit CARD Act
Foreign Corrupt Practices Act
The Dodd-Frank Act was adopted to reform and strengthen regulation and supervision of the U.S. financial services
industry. It contains comprehensive provisions governing the oversight of financial institutions, some of which apply to us.
Among other things, the Dodd-Frank Act established the CFPB, which has broad authority to implement and enforce “federal
consumer financial law,” as well as authority to examine financial institutions, including credit issuers that may be sellers of
receivables and debt buyers and collectors such as us, for compliance with federal consumer financial law.
The CFPB has broad authority to prevent unfair, deceptive, or abusive acts or practices by issuing regulations or by using
its enforcement authority without first issuing regulations. State Attorneys General and state financial regulators also have
authority to enforce the CFPA’s general prohibitions against unfair, deceptive, or abusive acts or practices, as well as state-
specific prohibitions against unfair or deceptive acts or practices. Additionally, the FTCA prohibits unfair and deceptive acts or
practices in connection with a trade or business and gives the FTC enforcement authority to prevent and redress violations of
this prohibition. The broad authority of these regulators has increased the potential consequences of noncompliance with federal
consumer financial law.
The CFPB’s authority enables it to conduct hearings, adjudication proceedings, and investigations, either unilaterally or
jointly with other state and federal regulators, to determine if federal consumer financial law has been violated. The CFPB has
authority to impose monetary penalties for violations of applicable federal consumer financial laws (including the CFPA,
FDCPA, and FCRA, among other consumer protection statutes), require remediation of practices, and pursue enforcement
actions. The CFPB also has authority to obtain cease and desist orders (which can include orders for restitution or rescission of
contracts, as well as other kinds of affirmative relief), costs, and monetary penalties ranging from $5,000 per day for ordinary
violations of federal consumer financial laws to $25,000 per day for reckless violations and $1 million per day for knowing
violations. The CFPB has been active in its supervision of, and examination and enforcement activities related to, financial
services companies generally, including bringing enforcement actions, imposing fines and mandating large refunds to
customers of several financial institutions for various practices.
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The CFPB and the FTC continue to devote substantial attention to the debt collection industry, and have brought multiple
investigations and enforcement actions against debt collectors for alleged violations of the FDCPA and other applicable laws.
Continued regulatory scrutiny by the CFPB and the FTC over debt collection practices may result in additional investigations
and enforcement actions against the debt collection industry.
In September 2015, we entered into a consent order (the “2015 Consent Order”) with the CFPB in which we settled
allegations arising from our practices between 2011 and 2015. In September 2020, the CFPB filed a lawsuit alleging that we
violated the 2015 Consent Order. In the lawsuit, the CFPB alleged that we did not perfectly adhere to certain operational
provisions of the 2015 Consent Order, leading to alleged violations of federal consumer financial law. In October 2020, we
entered into a stipulated judgment (“Stipulated Judgment”) with the CFPB to resolve the lawsuit. The Stipulated Judgment
requires us to, among other things, continue to follow a narrow subset of the operational requirements contained in the 2015
Consent Order, all of which have long been part of our routine practices. In connection with the Stipulated Judgment, the CFPB
formally terminated the 2015 Consent Order.
Additionally, we are subject to ancillary state Attorney General investigations related to similar debt collection practices.
We have entered into various settlement agreements with the Attorneys General of certain U.S. states in connection with our
debt collection and litigation practices.
In November 2021, the CFPB final rules in the form of a new Regulation F that implement the Fair Debt Collection
Practices Act became effective. Regulation F restates and clarifies prohibitions on harassment and abuse, false or misleading
representations, and unfair practices by debt collectors when collecting consumer debt. The rules included provisions related to,
among other things, the use of newer technologies (text, voicemail and email) to communicate with consumers, limits relating
to telephonic communications, consumer disclosures and credit reporting.
In addition, the CFPB has issued guidance in the form of bulletins, interpretive rules, and advisory opinions on debt
collection and credit furnishing activities generally, including those related to:
•
•
•
•
•
representations regarding credit reports and credit scores during the debt collection process;
the application of the CFPA’s prohibition of unfair, deceptive, or abusive acts or practices on debt collection;
the risks that in-person collection of consumer debt may create in violating the FDPCA and CFPA;
the scope of state attorney generals’ enforcement authority under the CFPA and the FCRA; and
the collection of fees associated with certain accounts.
The CFPB also accepts debt collection consumer complaints and released template letters for consumers to use when
corresponding with debt collectors. The CFPB makes publicly available its data on consumer complaints. The Dodd-Frank Act
also mandates the submission of multiple studies and reports to Congress by the CFPB, and CFPB staff regularly make
speeches on topics related to credit and debt. All of these activities could trigger additional legislative or regulatory action. In
addition, the CFPB has engaged in enforcement activity in sectors adjacent to our industry, impacting credit originators,
collection firms, and payment processors, among others. The CFPB’s enforcement activity in these spaces, especially in the
absence of clear rules or regulatory expectations, can be disruptive to third parties as they attempt to define appropriate business
practices. As a result, certain commercial relationships we maintain may be disrupted or impacted by changes in third-parties’
business practices or perceptions of elevated risk relating to the debt collection industry.
Our activities are also subject to federal and state laws concerning identity theft, data privacy, and cybersecurity. The
Gramm-Leach-Bliley Act and its implementing regulations, including the FTC “Safeguards Rule,” require us generally to
protect the confidentiality of our consumers’ nonpublic personal information, to disclose to our consumers our privacy policy
and practices, including those regarding sharing consumers’ nonpublic personal information with third parties and to report
certain data breaches and other security events to the FTC. In addition, the FCRA requires us to prevent identity theft and to
securely dispose of consumer credit reports. Certain state laws impose similar or stricter privacy obligations as well as
obligations to provide notification of security breaches of personal information to affected individuals, consumer reporting
agencies, businesses and governmental agencies. The applicable regulatory framework for privacy and cybersecurity issues is
evolving and uncertain. For example, the California Privacy Rights Act (“CPRA”), which became operative on January 1, 2023
and amends and expands the California Consumer Privacy Act (“CCPA”), imposes more stringent requirements on certain
businesses with respect to consumer and employee data privacy in California. These laws include provisions that give
California residents and employees expanded rights to access and delete certain personal information, opt out of certain
personal information sharing, and receive detailed information about how certain personal information is used. Compliance
with any new or developing privacy laws in the United States, including any state or federal laws, may require significant
resources and subject us to a variety of regulatory and private sanctions.
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In addition to the federal statutes detailed above, many states have general consumer protection statutes, laws, regulations,
or court rules that apply to debt purchasing and collection. In a number of states and cities, we must maintain licenses to
perform debt collection activities and must satisfy ongoing compliance and bonding requirements. It is our policy to comply
with all applicable licensing, compliance and bonding requirements. Our failure to comply with existing requirements, changing
interpretations of existing requirements, or adoption of new requirements, could subject us to a variety of regulatory and private
sanctions. These could include license suspension or revocation; orders or injunctive relief, including orders providing for
rescission of transactions or other affirmative relief; and monetary relief, including restitution, damages, fines and/or penalties.
In addition, failure to comply with state licensing and compliance requirements could restrict our ability to collect in certain
states, subject us to increased regulation, increase our costs, or adversely affect our ability to collect our receivables.
State laws may also, among other things, limit the amounts we may garnish from a consumer in enforcing a judgement,
limit the ways in which we can contact a consumer, limit the time in which we may file legal actions, and require specific
account information for certain collection activities. By way of example, Washington D.C. passed the “Protecting Consumers
from Unjust Debt Collection Practices Amendment Act of 2021” which went into effect January 2023. The law, among other
things, requires both debt buyers and debt collectors operating in Washington D.C. to have in their possession specific account
information before debt collection efforts can begin and has contact limitations more restrictive than the CFPB. In addition,
other state and local requirements and court rulings in various jurisdictions may also affect our ability to collect.
The relationship between consumers and credit card issuers is also extensively regulated by federal and state consumer
protection and related laws and regulations. These laws may affect some of our operations because the majority of our
receivables originate through credit card transactions. The laws and regulations applicable to credit card issuers, among other
things, impose disclosure requirements when a credit card account is advertised, when it is applied for and when it is opened, at
the end of monthly billing cycles, and at year-end. Federal law requires, among other things, that credit card issuers disclose to
consumers the interest rates, fees, grace periods, and balance calculation methods associated with their credit card accounts.
Some laws prohibit discriminatory practices in connection with the extension of credit. If the originating institution fails to
comply with applicable statutes, rules, and regulations, it could create claims and rights for consumers that would reduce or
eliminate their obligations related to those receivables. When we acquire receivables, we generally require the credit originator
or portfolio reseller to represent that they have complied with applicable statutes, rules, and regulations relating to the
origination and collection of the receivables before they were sold to us.
Federal statutes further provide that, in some cases, consumers cannot be held liable for, or their liability is limited with
respect to, charges to their credit card accounts that resulted from unauthorized use of their credit cards. These laws, among
others, may give consumers a legal cause of action against us, or may limit our ability to recover amounts owing with respect to
the receivables, whether or not we committed any wrongful act or omission in connection with the account.
These laws and regulations, and others similar to the ones listed above, as well as laws applicable to specific types of debt,
impose requirements or restrictions on collection methods or our ability to enforce and recover certain of our receivables.
Effects of the law, including those described above, and any new or changed laws, rules, or regulations, and reinterpretation of
the same, may adversely affect our ability to recover amounts owing with respect to our receivables or the sale of receivables by
creditors and resellers.
Cabot (Europe)
Our operations in Europe are affected by local statutes, rules and regulations. It is our policy to comply with these laws in
all of our recovery activities in Europe, where applicable.
Financial Conduct Authority Regulation. UK debt purchase and services collections businesses are principally regulated
by the Financial Conduct Authority (“FCA”), the UK Information Commissioner’s Office and the UK Office of
Communications. Cabot has three regulated entities in the UK: the debt purchase brand Cabot Credit Management Group
Limited (“CCMG”), the servicing brand Wescot Credit Services Limited (“Wescot”) and Cabot’s law firm, Mortimer Clarke
Solicitors Limited (“Mortimer Clarke”). The FCA regards debt collection as a “high risk” activity primarily due to the potential
impact that poor practice can have on already vulnerable consumers and as a result maintains a high focus on the sector. The
FCA Handbook sets out the FCA rules and other provisions. Firms wishing to carry on regulated consumer credit activities
must comply with all applicable sections of the FCA Handbook, including principles to “act to deliver good outcomes for retail
customers,” as well as the applicable consumer credit laws and regulations. The FCA also publishes guidance on various topics
from time to time that it expects firms to comply with.
The FCA has applied its rules to consumer credit firms in a number of areas, including its high-level principles and
conduct of business standards. In July 2023, the FCA implemented its new Consumer Duty, which aims to provide a higher
level of consumer protection in retail financial markets and combines existing consumer treatment requirements with enhanced
standards by requiring firms to act to deliver good outcomes for customers. The FCA has significant powers and, as the FCA
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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 the FCA requirements will demand continued investment
and resources. Companies authorized by the FCA must be able to demonstrate that they meet the threshold conditions for
authorization and comply on an ongoing basis with the FCA’s high level standards for authorized firms, such as its Principles
for Business (including the principle of ‘‘treating customers fairly’’), and rules and guidance on systems and controls.
The Senior Managers and Certification Regime (“SMCR”), designed to drive accountability and risk ownership within
businesses, came into effect for UK operations in December 2019, and affected the majority of colleagues who need to be
aware of and adhere to the required standards of conduct. In addition to the full authorization of its business with the FCA,
CCMG, Wescot and Mortimer Clarke have appointed certain individuals who have significant control or influence over the
management of the respective businesses, known as Senior Management Function Managers (“SMF Managers”). SMF
Managers are subject to statements of principle and codes of practice established and enforced by the FCA.
The FCA has the ability to, among other things, impose significant fines, ban certain individuals from carrying on trade
within the financial services industry, impose requirements on a firm’s permission, cease certain products from being collected
upon and in extreme circumstances remove permissions to trade.
Consumer protection. The Consumer Credit Act of 1974 (and its related regulations) (the “UK Consumer Credit Act”)
and the UK Consumer Rights Act 2015 set forth requirements for the entry into and ongoing management of consumer credit
arrangements in the United Kingdom. A failure to comply with these requirements can make agreements unenforceable or can
result in a requirement that charged and collected interest be repaid. The FCA continues to review the provisions of the UK
Consumer Credit Act and having up to this point prioritized changes linked to Brexit are now working with the UK
Government to focus on terms that have been identified as requiring the most urgent updates.
Data protection. In addition to these regulations on debt collection and debt purchase activities, Cabot must comply with
the General Data Protection Regulation 2016/679 (“GDPR”) and where applicable the UK Data Protection Act 2018. This
substantially replaced the previous legislation (Data Protection Act of 1998) and introduced significant changes to the data
protection regime including but not limited to: the conditions for obtaining consent to process personal data; transparency and
providing information to individuals regarding the processing of their personal data; enhanced rights for individuals;
notification obligations for personal data breach; and new supervisory authorities, including a European Data Protection Board
(“EDPB”). Data Protection Officer(s) have been appointed for the UK, Spain and Ireland who are supported by Privacy
Champions at each European/UK site to promote and enforce good data protection practices.
In the EU, there is a new regulatory framework under Directive 2021/2167 of the European Parliament and of the Council
on credit servicers and credit purchasers, known as the Non-Performing Loan (“NPL”) Directive. Member states within the EU
must comply with this Directive and transpose it into local law. The NPL Directive regulates the sale, purchase, and servicing
of NPLs originated by EU credit institutions, and states that the activity of credit servicing is subject to authorization and
defines the requirements for the granting of such authorization. Member States must establish their authorization procedures
and set up a national register of all credit servicers authorized to provide services within their territory. The activities of credit
servicers are subject to supervision by the competent authority of the home Member State. To date, of the markets we operate
in, Ireland and France are the only EU member states to transpose the NPL Directive into local law with our Irish entity
automatically being given credit servicing authorization and our French entity currently working through the authorization
process.
In addition, the other markets in which we currently operate are subject to local laws and regulations, and we continue to
review the required risk and compliance programs to facilitate compliance with applicable laws and regulations in those
markets. Our operations outside the United States are subject to the U.S. Foreign Corrupt Practices Act, which prohibits U.S.
companies and their agents and employees from providing anything of value to a foreign official for the purposes of influencing
any act or decision of these individuals in order to obtain an unfair advantage, to help, obtain, or retain business.
Human Capital Management
As of December 31, 2023, we had approximately 7,400 employees, of which approximately 19% were in the United
States and 81% were in our international locations. We have no employees in North America represented by a labor union or
subject to the terms of collective bargaining agreements. We have employees in Spain, France and the United Kingdom who are
represented by collective bargaining agreements. We believe that our relations with our employees in all locations are positive.
Our approach to human capital management starts with a strong foundation anchored in our commitment to values and
ethics. Attracting, developing and retaining talent is critical to executing our strategy and our ability to compete effectively. We
believe in the importance of creating a diverse and inclusive work environment for our employees, supporting their well-being
with fair and market-competitive pay and benefits, and investing in their growth and development.
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We also value feedback from our employees and regularly survey them to understand how they feel about the company
and subsequently take appropriate actions and employ employee engagement best practices to improve their work experience.
Commitment to Values and Ethics
We are committed to ensuring fundamental human rights across our business and in each region. We have published a
Global Human Rights Policy that outlines our commitment to respect and promote human rights in accordance with
internationally recognized human rights standards. This policy details our actions concerning human rights, such as providing
fair and competitive compensation, benefits and hours to our colleagues, freedom of association and collective bargaining, and
our zero-tolerance policy for harassment and discrimination.
We also hold our employees to the ethical practices and decision making as guided by our Standards of Business Conduct,
which embody Encore’s Mission, Vision and Values, provide guidance on specific behaviors, and set the foundation for ethical
decision making. Our Standards of Business Conduct reflect our commitment to operating in a fair, honest, responsible and
ethical manner and provide direction for reporting complaints in the event of alleged violations of our policies (including
through our Employee Compliance Hotline).
Diversity and Inclusion
At Encore, we are committed to cultivating an inclusive culture that reflects our consumers and our communities, where
our actions and mindset ensure every individual can thrive. We see advancing diversity and inclusion as a journey that we will
continually work on to build a better Encore for our employees and other stakeholders. We value diverse viewpoints and
inclusive experiences and strive for balanced representation in our overall organization. We foster a culture of respect and
inclusion in various ways, including offering unconscious bias and diversity training, tracking gender diversity, and celebrating
diversity through global cultural appreciation initiatives. As of December 31, 2023, approximately 49% of our total workforce
were women.
Financial, Health and Mental Well-Being
We strive to retain and attract the most talented employees by taking a holistic approach to well-being. This includes
competitive compensation and benefits in the form of base salary, short-term incentives, opportunities for long-term incentives,
retirement and financial support, and recognition programs as part of our financial well-being offerings. We also provide
competitive benefits that include comprehensive health and welfare insurance, generous time-off and leave, and programs such
as Employee Assistance Program, paid time off for volunteering activities, and wellness incentives to support the health and
mental well-being of our employees.
Growth and Development
We are committed to actively fostering a learning culture and investing in ongoing professional and career development
for our employees. We empower managers and employees with collective accountability for developing themselves and others,
and promote ongoing dialogue, coaching, feedback, and improvement through our performance management practices. We
offer employees an extensive number of programs and tools for their personal and professional development including
instructor-led training courses, leadership development programs, on-demand virtual learning, individual development
planning, mentoring, roles-based functional and technical training, compliance training, peer learning opportunities, and tuition
reimbursement programs. We also aligned our talent and succession planning framework at a global level to support the
development of our internal talent pipeline for current and future organizational needs, and to provide an overall health gauge of
our global talent pool.
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Item 1A—Risk Factors
There are risks and uncertainties in our business that could cause our actual results to differ from those anticipated. We
urge you to read these risk factors carefully in connection with evaluating our business and in connection with the forward-
looking statements and other information contained in this Annual Report on Form 10-K. Any of the risks described herein
could affect our business, financial condition, or future results and the actual outcome of matters as to which forward-looking
statements are made. The list of risks is not intended to be exhaustive, and the order in which the risks appear is not intended as
an indication of their relative weight or importance. Additional risks and uncertainties not currently known to us, or that we
currently deem to be immaterial, also may adversely affect our business, financial condition and/or operating results.
Risks Related to Our Business and Industry
Financial and economic conditions affect the ability of consumers to pay their obligations, which could harm our financial
results.
Economic conditions globally and locally directly affect unemployment and credit availability. Adverse conditions
(including natural disasters), economic changes (including significant inflation), and financial disruptions (including
unemployment) place financial pressure on the consumer, which may reduce our ability to collect on our consumer receivable
portfolios and may adversely affect the value of our consumer receivable portfolios. Further, increased financial pressures on
the financially distressed consumer may result in additional regulatory requirements or restrictions on our operations and
increased litigation filed against us. These conditions could increase our costs and harm our business, financial condition, and
operating results.
We may not be able to purchase receivables at favorable prices, which could limit our growth or profitability.
Our ability to continue to operate profitably depends upon the continued availability of receivable portfolios that meet our
purchasing standards and are cost-effective based upon projected collections exceeding our costs. Due, in part, to fluctuating
prices for receivable portfolios, fluctuating supply and competition within the marketplace, there has been, and could continue
to be, considerable variation in our purchasing volume and pricing from quarter to quarter and year to year. The volume of our
portfolio purchases may be limited when prices are high and may or may not increase when portfolio pricing is more favorable
to us. Further, our rates of return may decline when portfolio prices are high. We do not know how long portfolios will be
available for purchase on terms acceptable to us, or at all.
The availability of receivable portfolios at favorable prices depends on a number of factors, including:
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volume of defaults in consumer debt;
continued sale of receivable portfolios by originating institutions and portfolio resellers at sufficient volumes and
acceptable price levels;
competition in the marketplace;
our ability to develop and maintain favorable relationships with key major credit originators and portfolio
resellers;
our ability to obtain adequate data from credit originators or portfolio resellers to appropriately evaluate the
collectability of, estimate the value of, and collect on portfolios; and
changes in laws and regulations governing consumer lending, bankruptcy, and collections.
We enter into “forward flow” contracts, which are commitments to purchase receivables on a periodic basis over a
specified period of time in accordance with certain criteria, which may include a specifically defined volume, frequency, and
pricing. In periods of decreasing prices, we may end up paying an amount higher for such debt portfolios in a forward flow
contract than we would otherwise agree to pay at the time for a spot purchase, which could result in reduced returns. We may
only be able to terminate such forward flow agreements in certain limited circumstances or, for certain agreements, after a
certain notice period.
In addition, because of the length of time involved in collecting charged-off consumer receivables on acquired portfolios
and the volatility in the timing of our collections, we may not be able to identify trends and make changes in our purchasing
strategies in a timely manner. Ultimately, if we are unable to continually purchase and collect on a sufficient volume of
receivables to generate cash collections that exceed our costs or to generate satisfactory returns, our business, financial
condition and operating results will be adversely affected.
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A significant portion of our portfolio purchases during any period may be concentrated with a small number of sellers,
which could adversely affect our volume and timing of purchases.
A significant percentage of our portfolio purchases for any given fiscal quarter or year may be concentrated with a few
large sellers, some of which may also involve forward flow arrangements. We cannot be certain that any of our significant
sellers will continue to sell charged-off receivables to us, that such sales would be on terms or in quantities acceptable to us, or
that we would be able to replace these purchases with purchases from other sellers.
A significant decrease in the volume of portfolio available from any of our principal sellers would force us to seek
alternative sources of charged-off receivables.
We may be unable to find alternative sources from which to purchase charged-off receivables, and even if we could
successfully replace these purchases, the search could take time and the receivables could be of lower quality, cost more, or
both, any of which could adversely affect our business, financial condition and operating results.
We face intense competition that could impair our ability to maintain or grow our purchasing volumes.
The charged-off receivables purchasing market is highly competitive. We compete with a wide range of other purchasers
of charged-off consumer receivables. To the extent our competitors are able to better maximize recoveries on their assets or are
willing to accept lower rates of return, we may not be able to grow or sustain our purchasing volumes or we may be forced to
acquire portfolios at expected rates of return lower than our historical rates of return. Some of our competitors may obtain
alternative sources of financing at more favorable rates than those available to us, the proceeds from which may be used to fund
expansion and to increase the amount of charged-off receivables they purchase.
We face bidding competition in our acquisition of charged-off consumer receivables. We believe that successful bids are
predominantly awarded based on price and, to a lesser extent, based on service, reputation, and relationships with the sellers of
charged-off receivables. Some of our current competitors, and potential new competitors, may have more effective pricing and
collection models, greater adaptability to changing market needs, and more established relationships in our industry than we do.
Moreover, our competitors may elect to pay prices for portfolios that we determine are not economically sustainable and, in that
event, we may not be able to continue to offer competitive bids for charged-off receivables.
If we are unable to develop and expand our business or to adapt to changing market needs as well as our current or future
competitors, we may experience reduced access to portfolios of charged-off consumer receivables in sufficient face value
amounts at appropriate prices, which could adversely affect our business, financial condition and operating results.
We may purchase receivable portfolios that are unprofitable or we may not be able to collect sufficient amounts to recover
our costs and to fund our operations.
We acquire and service charged-off receivables that the obligors have failed to pay and the sellers have deemed
uncollectible and have written off. The originating institutions and/or portfolio resellers generally make numerous attempts to
recover on these nonperforming receivables, often using a combination of their in-house collection and legal departments, as
well as third-party collection agencies. In order to operate profitably over the long term, we must continually purchase and
collect on a sufficient volume of charged-off receivables to generate revenue that exceeds our costs. These receivables are
difficult to collect, and we may not be successful in collecting amounts sufficient to cover the costs associated with purchasing
the receivables and funding our operations. If we are not able to collect on these receivables, collect sufficient amounts to cover
our costs or generate satisfactory returns, this may adversely affect our business, financial condition and operating results.
We may experience losses on portfolios consisting of new types of receivables or receivables in new geographies due to our
lack of collection experience with these receivables, which could harm our business, financial condition and operating
results.
We continually look for opportunities to expand the classes of assets that make up the portfolios we acquire. Therefore,
we may acquire portfolios consisting of assets with which we have little or no collection experience or portfolios of receivables
in new geographies where we do not historically maintain an operational footprint. Our lack of experience with these assets
may hinder our ability to generate expected levels of profits from these portfolios. Further, our existing methods of collections
may prove ineffective for these new receivables, and we may not be able to collect on these portfolios. Our inexperience with
these receivables may have an adverse effect on our business, financial condition and operating results.
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The statistical models we use to project remaining cash flows from our receivable portfolios may prove to be inaccurate and,
if so, our financial results may be adversely affected.
We use internally developed models to project the remaining cash flows from our receivable portfolios. These models
consider known data about our consumers’ accounts, including, among other things, our collection experience and changes in
external consumer factors, in addition to data known when we acquire the accounts. Our models also consider data provided by
third parties including public sources. We may not be able to achieve the collections forecasted by our models. Our models may
not appropriately identify or assess all material factors or trends and yield correct or accurate forecasts as our historical
collection experience may not reflect current or future realities. We also have no control over the accuracy of information
received from third parties. If such information is not accurate our models may not accurately project estimated remaining cash
flows. If we are not able to achieve the levels of forecasted collections, our revenues will be reduced or we may be required to
record a charge, which may adversely affect our business, financial condition and operating results.
A significant portion of our collections relies upon our success in individual lawsuits brought against consumers and our
ability to collect on judgments in our favor.
We generate a significant portion of our revenue by collecting on judgments that are granted by courts in lawsuits filed
against consumers. A decrease in the willingness of courts to grant these judgments, a change in the requirements for filing
these cases or obtaining these judgments, a decrease in our ability to collect on these judgments, or any closure of court systems
could have an adverse effect on our business, financial condition and operating results. As we increase our use of the legal
channel for collections, our short-term margins may decrease as a result of an increase in upfront court costs and costs related to
counter claims. We may not be able to collect on certain aged accounts because of applicable statutes of limitations and we may
be subject to adverse effects of regulatory changes. Further, courts in certain jurisdictions require that a copy of the account
statements or applications be attached to the pleadings in order to obtain a judgment against consumers. If we are unable to
produce those account documents, these courts could deny our claims, and our business, financial condition and operating
results may be adversely affected.
Increases in costs associated with our collections through collection litigation can raise our costs associated with our
collection strategies and the individual lawsuits brought against consumers to collect on judgments in our favor.
We have substantial collection activity through our legal collections channel and, as a consequence, increases in upfront
court costs, costs related to counterclaims, and other court costs may increase our total cost in collecting on accounts in this
channel, which may have an adverse effect on our business, financial condition and operating results.
Our business, financial condition and operating results may be adversely affected if consumer bankruptcy filings increase or
if bankruptcy laws change.
Our business model may be uniquely vulnerable to an economic recession, which typically results in an increase in the
amount of defaulted consumer receivables, thereby contributing to an increase in the amount of personal bankruptcy filings.
Under certain bankruptcy filings, a consumer’s assets are sold to repay credit originators, with priority given to holders of
secured debt. Since the defaulted consumer receivables we purchase are generally unsecured, we often are not able to collect on
those receivables. In addition, since we purchase receivables that may have been delinquent for a long period of time, this may
be an indication that many of the consumers from whom we collect will be unable to pay their debts going forward and are
more likely to file for bankruptcy in an economic recession. Furthermore, potential changes to existing bankruptcy laws could
contribute to an increase in consumer bankruptcy filings. We cannot be certain that our collection experience would not decline
with an increase in consumer bankruptcy filings. If our actual collection experience with respect to a defaulted consumer
receivable portfolio is significantly lower than we projected when we purchased the portfolio, our business, financial condition
and operating results could be adversely affected.
We are subject to audits conducted by sellers of debt portfolios and may be required to implement specific changes to our
policies and practices as a result of adverse findings by such sellers as a part of the audit process, which could limit our
ability to purchase debt portfolios from them in the future, which could materially and adversely affect our business.
Pursuant to purchase contracts, we are subject to audits that are conducted by sellers of debt portfolios. Such audits may
occur with little notice and the assessment criteria used by each seller varies based on their own requirements, policies and
standards. Although much of the assessment criteria is based on regulatory requirements, we may be asked to comply with
additional terms and conditions that are unique to particular debt originators. From time to time, sellers may believe that we are
not in compliance with certain of their criteria and in such cases, we may be required to dedicate resources and to incur
expenses to address such concerns, including the implementation of new policies and procedures. In addition, to the extent that
we are unable to satisfy the requirements of a particular seller, such seller could remove us from their panel of preferred
purchasers, which could limit our ability to purchase debt portfolios from that seller in the future, which could adversely affect
our business, financial condition and operating results.
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We rely on third parties to provide us with services in connection with certain aspects of our business, and any failure by
these third parties to perform their obligations, or our inability to arrange for alternative third-party providers for such
services, could have an adverse effect on our business, financial condition and operating results.
We are dependent upon the efforts of third-party service providers including collection agencies, law firms, data
providers, tracing service providers and other servicers to help service and collect our charged-off receivables. Our third-party
servicers could fail to perform collection services for us adequately, remit those collections to us or otherwise perform their
obligations adequately. In addition, one or more of those third-party service providers could cease operations abruptly or
become insolvent, or our relationships with such third-party service providers may otherwise change adversely. Further, we
might not be able to secure replacement third-party service providers or promptly transfer account information to our new third-
party service provider or in-house in the event our agreements with our third-party collection agencies and attorneys were
terminated. In addition, to the extent these third-party service providers violate laws, other regulatory requirements or their
contractual obligations, or act inappropriately in the conduct of their business, our business and reputation could be negatively
affected or penalties could be directly imposed upon us. Any of the foregoing factors could cause our business, financial
condition and operating results to be adversely affected.
We have entered into agreements with third parties to provide us with services in connection with our business, including
payment processing, credit card authorization and processing, payroll processing, record keeping for retirement and benefit
plans and certain information technology functions. Any failure by a third party to provide us with contracted services on a
timely basis or within service level expectations and performance standards may have an adverse effect on our business,
financial condition and operating results. In addition, we may be unable to find, or enter into agreements with, suitable
replacement third party providers for such services, which could adversely affect our business, financial condition and operating
results.
We are dependent on our data gathering systems and proprietary consumer profiles, and if access to such data was lost or
became public, our business could be materially and adversely affected.
Our models and consumer databases provide information that is critical to our business. We rely on data provided to us by
multiple credit reference agencies, our servicing partners and other sources in order to operate our systems, develop our
proprietary consumer profiles and run our business generally. If these credit reference agencies were to terminate their
agreements or stop providing us with data for any reason, for example, due to a change in governmental regulation, or if they
were to considerably raise the price of their services, our business could be materially and adversely affected. Also, if any of the
proprietary information or data that we use became public, for example, due to a change in government regulations, we could
lose a significant competitive advantage and our business could be negatively impacted.
If we become unable to continue to acquire or use information and data in the manner in which it is currently acquired and
used, or if we were prohibited from accessing or aggregating the data in these systems or profiles for any reason, we may lose a
significant competitive advantage, in particular if our competitors continue to be able to acquire and use such data, and our
business could be materially and adversely affected.
If our technology and telecommunications systems were to fail, fail to be effective, or if we are not able to successfully
anticipate, invest in, or adopt technological advances within our industry, it could have an adverse effect on our operations.
Our success depends in large part on sophisticated computer and telecommunications systems. The temporary or
permanent loss of our computer and telecommunications equipment and software systems, through casualty, operating
malfunction, software virus, or service provider failure, could disrupt our operations. In the normal course of our business, we
must record and process significant amounts of data quickly and accurately to properly bid on prospective acquisitions of
receivable portfolios and to access, maintain, and expand the databases we use for our collection activities. Any simultaneous
failure of our information systems and their backup systems would interrupt our business operations.
In addition, our business relies on computer and telecommunications technologies, and our ability to integrate new
technologies into our business is essential to our competitive position and our success. We may not be successful in
anticipating, investing in, or adopting technological changes on a timely or cost-effective basis. Computer and
telecommunications technologies are evolving rapidly and are characterized by short product life cycles.
We continue to make significant modifications to our information systems to ensure that they continue to be adequate for
our current and foreseeable demands and continued expansion, and our future growth may require additional investment in
these systems. These system modifications may exceed our cost or time estimates for completion or may be unsuccessful. If we
cannot update our information systems effectively, our business, financial condition and operating results may be adversely
affected.
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We use our technology and telecommunications systems to contact consumers in an attempt to collect on receivables.
Over recent years, we have observed an increase in the adoption by consumers, telephone carriers and communications
platforms of call, email, or other communication filtering or blocking. If calls, emails or other communications are blocked or
we are otherwise not able to contact our consumers our ability to collect on our receivables through our call center and digital
collections channel could be impacted and we would need to pursue collections through our higher-cost legal collections
channel, which could impact our operating results.
Our business results and operations could be adversely affected by a cybersecurity event, breach, business interruption or
similar incident relating to our information technology systems.
We rely on information technology networks and systems to process and store electronic information. We collect and
store sensitive data, including personally identifiable information of our consumers, on our information technology networks.
Despite the implementation of risk and security measures (see Item 1A-Cybersecurity), our information technology networks
and systems have been, and in the future may be, vulnerable to disruptions and shutdowns due to attacks by threat actors or
breaches due to malfeasance by contractors, employees and others who have access to our networks and systems.
In addition to our own systems, we use third-party service providers, who in turn may also use third-party providers, to
process certain data or information on our behalf. Although we generally contractually require these service providers to
implement and maintain reasonable security measures, we cannot control third parties and cannot guarantee that a security
breach will not occur in their systems.
The occurrence of any of cybersecurity incident could compromise our networks and the information stored on our
networks (or on the networks of third-party service providers) could be accessed. Due to our size and the large number of
service providers we work with and the increasing sophistication and complexity of cyber attacks, an incident could occur and
persist for an extended period without detection. Any investigation of a cyber attack or other security incident would be
unpredictable and would take time before the completion of any investigation and before there is availability of full and reliable
information.
As cyber attacks continue to evolve, we may be required to expend significant additional resources to continue to modify
or enhance our protective measures or to investigate and remediate any information security vulnerabilities. In addition, our
remediation efforts may not be successful.
While we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us
against claims related to cybersecurity breaches or attacks, failures or other data security-related incidents, and we cannot be
certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that an insurer will
not deny coverage as to any future claim.
Any cybersecurity event, breach or similar incident relating to our information technology systems could disrupt our
operations, adversely affect the willingness of sellers to sell to us or result in legal claims, liability, reputational damage or
regulatory penalties under laws protecting the privacy of personal information, any of which could adversely affect our
business, financial condition and operating results.
We have significant international operations, which exposes us to additional risks and uncertainties.
Our international operations subject us to a number of additional risks and uncertainties, including:
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compliance with and changes in international laws, including regulatory and compliance requirements that could
affect our business;
differing accounting standards and practices;
increased exposure to U.S. laws that apply abroad, such as the Foreign Corrupt Practices Act, and exposure to
other anti-corruption laws such as the UK Bribery Act;
social, political and economic instability, recessions or uncertainty (including as a result of Brexit);
fluctuations in foreign economies and currency exchange rates;
difficulty in hiring, staffing and managing qualified and proficient local employees and advisors to run
international operations;
the difficulty of managing and operating an international enterprise, including difficulties in maintaining effective
communications with employees due to distance, language, and cultural barriers;
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difficulties implementing and maintaining effective internal controls and risk management and compliance
initiatives;
potential disagreements with our joint venture business partners;
differing labor regulations and business practices; and
foreign and, in some circumstances, U.S. tax consequences.
Each of these could adversely affect our business, financial condition and operating results.
We may not be able to adequately protect the intellectual property rights upon which we rely and, as a result, any lack of
protection may diminish our competitive advantage.
We rely on proprietary software programs and valuation and collection processes and techniques, and we believe that
these assets provide us with a competitive advantage. We consider our proprietary software, processes, and techniques to be
trade secrets, but they are not protected by patent or registered copyright. We may not be able to protect our technology and
data resources adequately, which may diminish our competitive advantage, which may, in turn, adversely affect our business,
financial condition and operating results.
Exchange rate fluctuations could adversely affect our business, financial condition and operating results.
Because we conduct some business in currencies other than U.S. dollars, primarily the British Pound, but report our
financial results in U.S. dollars, we face exposure to fluctuations in currency exchange rates upon translation of these business
results into U.S. dollars. In the normal course of business, we may employ various strategies to manage these risks, including
the use of derivative instruments. These strategies may not be effective in protecting us against the effects of fluctuations from
movements in foreign exchange rates. Fluctuations in foreign currency exchange rates could adversely affect our financial
condition and operating results.
An outbreak of a contagious disease or other public health emergency could materially impact our business and results of
operations.
The COVID-19 pandemic and resulting containment measures caused economic, financial and operational disruptions that
adversely affected certain aspects of our business and results of operations. Other public health emergencies could also affect
our business and results of operations and any impact would depend on future developments that we are not able to predict,
including the duration, spread and severity of the public health emergency; the nature, extent and effectiveness of containment
measures; the extent and duration of the effect on the economy; and how quickly and to what extent normal economic and
operating conditions resumed.
Risks Related to Government Regulation and Litigation
Our business is subject to extensive laws and regulations, which have increased and may continue to increase.
As noted in detail in “Item 1 - Part 1 - Business - Government Regulation” of this Annual Report on Form 10-K, extensive
laws and regulations directly apply to key portions of our business. These laws and regulations are also subject to review from
time to time and may be subject to significant change. Changes in laws and regulations applicable to our operations, or the
manner in which they are interpreted or applied, could limit our activities in the future or could significantly increase the cost of
regulatory compliance. These negative effects could result from changes in collection laws and guidance, laws related to credit
reporting, consumer bankruptcy laws, laws related to the management and enforcement of consumer debt, court and
enforcement procedures, the statute of limitation for debts, accounting standards, taxation requirements, employment laws,
communications laws, data privacy and protection laws, anti-bribery and corruption laws and anti-money laundering laws. For
example, in November 2021, the CFPB final rules in the form of a new Regulation F that implement the Fair Debt Collection
Practices Act became effective. Regulation F restated and clarified prohibitions on harassment and abuse, false or misleading
representations, and unfair practices by debt collectors when collecting consumer debt as discussed in more detail under “Part I
- Item 1—Business - Government Regulation.”
We sometimes purchase accounts in asset classes that are subject to industry-specific and/or issuer-specific restrictions
that limit the collection methods that we can use on those accounts. Further, we have seen a trend in laws, rules and regulations
requiring increased availability of historic information about receivables in order to collect. If credit originators or portfolio
resellers are unable or unwilling to meet these evolving requirements, we may be unable to collect on certain accounts. Our
inability to collect sufficient amounts from these accounts, through available collection methods, could adversely affect our
business, financial condition and operating results.
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In addition, the CFPB has engaged in enforcement activity in sectors adjacent to our industry, impacting credit
originators, collection firms, and payment processors, among others. Enforcement activity in these spaces by the CFPB or
others, especially in the absence of clear rules or regulatory expectations, may be disruptive to third parties as they attempt to
define appropriate business practices. As a result, certain commercial relationships we maintain may be disrupted or impacted
by changes in third-parties’ business practices or perceptions of elevated risk relating to the debt collection industry, which
could reduce our revenues, or increase our expenses, and consequently adversely affect our business, financial condition and
operating results.
Additional consumer protection or privacy laws, rules and regulations may be enacted, or existing laws, rules or
regulations may be amended, reinterpreted or enforced in a different manner, imposing additional restrictions or requirements
on the collection of receivables.
Any of the developments described above may adversely affect our ability to purchase and collect on receivables and may
increase our costs associated with regulatory compliance, which could adversely affect our business, financial condition and
operating results.
Failure to comply with government regulation could result in the suspension, termination or impairment of our ability to
conduct business, may require the payment of significant fines and penalties, or require other significant expenditures.
The U.S. collections industry is heavily regulated under various federal, state, and local laws, rules, and regulations. Many
states and several cities require that we be licensed as a debt collection company. The CFPB, FTC, state Attorneys General and
other regulatory bodies have the authority to investigate a variety of matters, including consumer complaints against debt
collection companies, and can bring enforcement actions and seek monetary penalties, consumer restitution, and injunctive
relief. If we, or our third-party collection agencies or law firms fail to comply with applicable laws, rules, and regulations,
including, but not limited to, identity theft, privacy, data security, the use of automated dialing equipment, laws related to
consumer protection, debt collection, and laws applicable to specific types of debt, it could result in the suspension or
termination of our ability to conduct collection operations, which would adversely affect us. Further, our ability to collect our
receivables may be affected by state laws, which require that certain types of account documentation be presented prior to the
institution of any collection activities.
Our failure or the failure of third-party agencies and attorneys, or the credit originators or portfolio resellers selling
receivables to us, to comply with existing or new laws, rules, or regulations could limit our ability to recover on receivables,
affect the willingness of financial institutions to sell portfolios to us, cause us to pay damages to consumers or result in fines or
penalties, which could reduce our revenues, or increase our expenses, and consequently adversely affect our business, financial
condition and operating results. For example, in 2020, the CFPB filed a lawsuit alleging that Encore and certain of our U.S.
subsidiaries had violated a consent order (the “2015 Consent Order”) pursuant to which we had previously settled allegations
raised by the CFPB arising from practices during the period between 2011 and 2015. In the lawsuit, the CFPB alleged that we
did not perfectly adhere to certain operational provisions of the 2015 Consent Order, leading to alleged violations of federal
consumer financial law. In 2020, we entered into a stipulated judgment (“Stipulated Judgment”) with the CFPB to resolve the
lawsuit. The Stipulated Judgment required us to, among other things, continue to follow a narrow subset of the operational
requirements contained in the 2015 Consent Order, all of which have long been part of the Company’s routine practices and pay
a $15.0 million civil monetary penalty.
In addition, new federal, state or local laws or regulations, or changes in the ways these rules or laws are interpreted or
enforced, could limit our activities in the future and/or significantly increase the cost of regulatory compliance.
Our operations outside the United States are subject to foreign and U.S. laws and regulations that apply to our
international operations, including GDPR, the UK Consumer Credit Act, the Foreign Corrupt Practices Act, the UK Bribery Act
and other local laws prohibiting corrupt payments to government officials. Violations of these laws and regulations could result
in fines and penalties, criminal sanctions, prohibitions on the conduct of our business and reputational damage.
The debt purchase and collections sector and the broader consumer credit industry in the United Kingdom, Ireland and the
other European jurisdictions in which we operate are also highly regulated under various laws and regulations. This legislation
is principles-based and therefore the interpretation of compliance is complex and may change over time. Failure to comply with
any applicable laws, regulations, rules or contractual compliance obligations could result in investigations, information
gathering, public censures, financial penalties, disciplinary measures, liability and/or enforcement actions, including licenses or
permissions that we need to do business not being granted or being revoked or the suspension or termination of our ability to
conduct collections. In addition, our debt purchase contracts with vendors include certain conditions and failure to comply or
revocation of a permission or authorization, or other actions taken by us that may damage the reputation of the vendor, may
entitle the vendor to terminate any agreements with us. Damage to our reputation, whether because of a failure to comply with
applicable laws, regulations or rules, revocation of a permission or authorization, any other regulatory action or our failure to
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comply with contractual compliance obligations, could deter vendors from choosing us as their debt purchase or collections
provider.
Compliance with this extensive regulatory framework is expensive and labor-intensive. Any of the foregoing could have
an adverse effect on our business, financial condition and operating results.
We are subject to ongoing risks of regulatory investigations and litigation, including individual and class action lawsuits,
under consumer credit, consumer protection, theft, privacy, collections, and other laws, and we may be subject to awards of
substantial damages or be required to make other expenditures or change our business practices as a result.
We operate in an extremely litigious climate and currently are, and may in the future be, named as defendants in litigation,
including individual and class action lawsuits under consumer credit, consumer protection, theft, privacy, data security,
automated dialing equipment, debt collections, and other laws. Many of these cases present novel issues on which there is no
clear legal precedent, which increases the difficulty in predicting both the potential outcomes and costs of defending these
cases. We are subject to ongoing risks of regulatory investigations, inquiries, litigation, and other actions by the CFPB, FTC,
FCA, state Attorneys General, Central Bank of Ireland or other governmental bodies relating to our activities. For example, in
September 2020 the CFPB filed a lawsuit alleging that Encore and certain of its US subsidiaries had violated the 2015 Consent
Order and in October 2020 we entered into the Stipulated Judgment with the CFPB to resolve the lawsuit. These litigation and
regulatory actions involve potential compensatory or punitive damage claims, fines, costs, sanctions, civil monetary penalties,
consumer restitution, or injunctive relief, as well as other forms of relief, that could require us to pay damages, make other
expenditures or result in changes to our business practices. Any changes to our business practices could result in lower
collections, increased cost to collect or reductions in estimated remaining collections. Actual losses incurred by us in connection
with judgments or settlements of these matters may be more than our associated reserves. Further, defending lawsuits and
responding to governmental inquiries or investigations, regardless of their merit, could be costly and divert management’s
attention from the operation of our business. All of these factors could have an adverse effect on our business, financial
condition and operating results.
Negative publicity associated with litigation, governmental investigations, regulatory actions, cybersecurity breaches and
other public statements could damage our reputation.
From time to time there are negative news stories about our industry or company, especially with respect to alleged
conduct in collecting debt from consumers. These stories may follow the announcements of litigation or regulatory actions
involving us or others in our industry. Negative publicity about our alleged or actual debt collection practices, about the debt
collection industry in general or our cybersecurity could adversely affect our stock price, our position in the marketplace in
which we compete, and our ability to purchase charged-off receivables, any of which could have an adverse effect on our
business, financial condition and operating results.
Risks Related to Our Indebtedness and Common Stock
Our significant indebtedness could adversely affect our financial health and could harm our ability to react to changes to
our business.
As described in greater detail in “Note 6: Borrowings” to our consolidated financial statements, as of December 31, 2023,
our total long-term indebtedness outstanding was approximately $3.3 billion. Our substantial indebtedness could have important
consequences to investors. For example, it could:
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increase our vulnerability to general economic downturns and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness,
thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general
corporate requirements;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
place us at a competitive disadvantage compared to competitors that have less debt;
increase our exposure to market and regulatory changes that could diminish the amount and value of our inventory
that we borrow against under our secured credit facilities; and
limit, along with the financial and other restrictive covenants contained in the documents governing our
indebtedness, our ability to borrow additional funds, make investments and incur liens, among other things.
Any of these factors could adversely affect our business, financial condition and operating results.
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Servicing our indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from our
business to pay our substantial indebtedness.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness or to make
cash payments in connection with any conversion of our convertible notes depends on our future performance, which is subject
to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow
from operations in the future sufficient to service our indebtedness and make necessary capital expenditures. If we are unable to
generate adequate cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring
indebtedness or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our
indebtedness will depend on the capital markets and our financial condition at that time. We may not be able to engage in any
of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations which
could, in turn, adversely affect our business, financial condition and operating results.
Despite our current indebtedness levels, we may still incur substantially more indebtedness or take other actions which
would intensify the risks discussed above.
Despite our current consolidated indebtedness levels, we and our subsidiaries may be able to incur substantial additional
indebtedness in the future. We are not restricted under the terms of the indentures governing our convertible notes from
incurring additional indebtedness, securing existing or future indebtedness, recapitalizing our indebtedness or taking a number
of other actions that could have the effect of diminishing our ability to make payments on our indebtedness. Although our credit
facilities and other existing debt currently limit the ability of us and certain of our subsidiaries to incur certain additional
indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances,
additional indebtedness incurred in compliance with these restrictions, including additional secured indebtedness, could be
substantial. Also, these restrictions will not prevent us from incurring obligations that do not constitute indebtedness. To the
extent new indebtedness or other new obligations are added to our current levels, the risks described above could intensify.
We may not be able to continue to satisfy the covenants in our debt agreements.
Our debt agreements impose a number of covenants, including restrictive covenants on how we operate our business.
Failure to satisfy any one of these covenants could result in negative consequences including the following, each of which could
have an adverse effect on our business, financial condition and operating results:
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acceleration or amortization of outstanding indebtedness;
exercise by our lenders of rights with respect to the collateral pledged under certain of our outstanding
indebtedness;
our inability to continue to purchase receivables needed to operate our business;
decrease in the level of liquidity that can be accessed under certain of our debt agreements; or
our inability to secure alternative financing on favorable terms, if at all.
In particular, the Global Senior Facility also requires the Company and the guarantors to observe certain customary
affirmative covenants, including three maintenance covenants. These require the Company to ensure that the LTV Ratio (as
defined in the Global Senior Facility) does not exceed 0.75 and the SSRCF Ratio (as defined in the Global Senior Facility) does
not exceed 0.275. The Company is further required to maintain a Fixed Charge Coverage Ratio (as defined in the Global Senior
Facility) of at least 2.0. These financial covenants are, subject in the case of the LTV Ratio to a minimum drawing requirement,
tested quarterly (or with respect to the SSRCF Ratio, monthly). The breach of any of these maintenance covenants could lead to
the consequences referred to above.
Increases in interest rates could adversely affect our business, financial condition and operating results.
Portions of our outstanding debt bear interest at a variable rate. Increases in interest rates could increase our interest
expense which would, in turn, lower our earnings. We may periodically evaluate whether to enter into derivative financial
instruments, such as interest rate swap agreements, to reduce our exposure to fluctuations in interest rates on variable interest
rate debt and their impact on earnings and cash flows. These strategies may not be effective in protecting us against the effects
of fluctuations from movements in interest rates. Increases in interest rates could adversely affect our business, financial
condition and operating results.
Our common stock price may be subject to significant fluctuations and volatility.
The market price of our common stock has been subject to significant fluctuations. These fluctuations could continue.
Among the factors that could affect our stock price are:
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•
•
•
•
•
•
•
•
•
•
•
our operating and financial performance and prospects;
our ability to repay our debt;
our access to financial and capital markets to refinance our debt;
investor perceptions of us and the industry and markets in which we operate;
future sales of equity or equity-related securities;
changes in earnings estimates or buy/sell recommendations by analysts;
changes in the supply of, demand for or price of portfolios;
our acquisition activity, including our expansion into new markets;
regulatory changes affecting our industry generally or our business and operations;
general financial, domestic, international, economic and other market conditions; and
the number of short positions on our stock at any particular time.
The stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated
to the operating performance of companies. The market price of our common stock could fluctuate significantly for many
reasons, including in response to the risks described in this Annual Report on Form 10-K, elsewhere in our filings with the SEC
from time to time or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or
negative announcements by our customers, competitors or suppliers regarding their own performance, as well as industry
conditions and general financial, economic and political instability.
The price of our common stock could also be affected by possible sales of our common stock by investors who view our
convertible notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we
expect to develop involving our common stock.
If securities or industry analysts have a negative outlook regarding our stock or our industry, or our operating results do
not meet their expectations, our stock price could decline. The trading market for our common stock is influenced by the
research and reports that industry or securities analysts publish about us. If one or more of the analysts who cover our company
downgrade our stock or if our operating results do not meet their expectations, our stock price could decline.
Future sales of our common stock or the issuance of other equity securities may adversely affect the market price of our
common stock.
In the future, we may sell additional shares of our common stock or other equity or equity-related securities to raise
capital or issue equity securities to finance acquisitions. In addition, a substantial number of shares of our common stock are
reserved for issuance upon conversion of our convertible notes. We are not restricted from issuing additional common stock,
including securities that are convertible into, or that represent the right to receive, common stock.
The liquidity and trading volume of our common stock is limited. The issuance or sale of substantial amounts of our
common stock or other equity or equity-related securities (or the perception that such issuances or sales may occur) could
adversely affect the market price of our common stock as well as our ability to raise capital through the sale of additional equity
or equity-related securities. We cannot predict the effect that future issuances or sales of our common stock or other equity or
equity-related securities would have on the market price of our common stock.
We may not have the ability to raise the funds necessary to repurchase our notes upon a fundamental change or change of
control or to settle conversions in cash, and our future indebtedness may contain limitations on our ability to pay cash upon
conversion of our convertible notes.
Holders of our notes will have the right to require us to repurchase their notes upon the occurrence of a fundamental
change or a change of control at a repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if
any. In addition, upon a conversion of notes we will be required to make cash payments for each $1,000 in principal amount of
notes converted of at least the lesser of $1,000 and the sum of certain daily conversion values. However, we may not have
enough available cash or be able to obtain financing at the time we are required to make repurchases of the notes surrendered
therefor or to settle conversions in cash. In addition, certain of our debt agreements contain restrictive covenants that limit our
ability to engage in specified types of transactions, which may affect our ability to repurchase our notes. Further, our ability to
repurchase our notes or to pay cash upon conversion may be limited by law, by regulatory authority or by agreements
governing our future indebtedness. Our failure to repurchase the notes or to pay cash upon conversion of the notes at a time
when the repurchase or cash payment upon conversion is required by any indenture pursuant to which the notes were offered
would constitute a default under the relevant indenture. Such default could constitute a default under other agreements
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governing our indebtedness. If the repayment of any indebtedness were to be accelerated, we may not have sufficient funds to
repay such indebtedness and repurchase the notes.
Provisions in our charter documents and Delaware law may delay or prevent acquisition of us, which could decrease the
value of shares of our common stock.
Our certificate of incorporation and bylaws and Delaware law contain provisions that could make it more difficult for a
third party to acquire us without the consent of our Board of Directors. These provisions include advance notice provisions,
limitations on actions by our stockholders by written consent and special approval requirements for transactions involving
interested stockholders. We are authorized to issue up to five million shares of preferred stock, the relative rights and
preferences of which may be fixed by our Board of Directors, subject to the provisions of our articles of incorporation, without
stockholder approval. The issuance of preferred stock could be used to dilute the stock ownership of a potential hostile acquirer.
The provisions that discourage potential acquisitions of us and adversely affect the voting power of the holders of common
stock may adversely affect the price of our common stock.
General
We are dependent on our management team for the adoption and implementation of our strategies and the loss of its
services could have an adverse effect on our business.
Our management team has considerable experience in finance, banking, consumer collections, and other industries. We
believe that the expertise of our executives obtained by managing businesses across numerous other industries has been critical
to the enhancement of our operations. Our management team has created a culture of new ideas and progressive thinking,
coupled with increased use of technology and statistical analysis. The management teams at each of our operating subsidiaries
are also important to the success of their respective operations. The loss of the services of one or more key members of
management could disrupt our collective operations and seriously impair our ability to continue to acquire or collect on
portfolios of charged-off receivables and to manage and expand our business, any of which could have an adverse effect on our
business, financial condition and operating results.
We may not be able to recruit and retain key employees and workers in a competitive labor market.
If we cannot successfully recruit and retain key employees and workers, or if we experience the unexpected loss of those
employees, our operations may be negatively affected. In addition, cost inflation may require us to enhance our compensation
in order to compete effectively in the hiring and retention of employees.
We may make acquisitions that prove unsuccessful and any mergers, acquisitions, dispositions or joint venture activities may
change our business and financial results and introduce new risks.
From time to time, we may make acquisitions of, or otherwise invest in, other companies that could complement our
business, including the acquisition of entities in diverse geographic regions and entities offering greater access to businesses
and markets that we do not currently serve. The acquisitions we make may be unprofitable or may take some time to achieve
profitability. In addition, we may not successfully operate the businesses that we acquire, or may not successfully integrate
these businesses with our own, which may result in our inability to maintain our goals, objectives, standards, controls, policies,
culture, or profitability. Through acquisitions, we may enter markets in which we have limited or no experience. Any
acquisition may result in a potentially dilutive issuance of equity securities, and the incurrence of additional debt which could
reduce our profitability. We also pursue dispositions and joint ventures from time to time. Any such transactions could change
our business lines, geographic reach, financial results or capital structure. Our company could be larger or smaller after any
such transactions and may have a different investment profile.
An impairment of goodwill could negatively impact our financial results.
We have a significant amount of goodwill. Goodwill is tested for impairment at the reporting unit level annually and in
interim periods if certain events occur that indicate that the fair value of a reporting unit may be below its carrying value. The
goodwill test compares the fair value for each of our reporting units to its associated carrying value. Determining the fair value
of a reporting unit requires us to make judgments and involves the use of significant estimates and assumptions. Adverse
changes in the Company’s actual or expected operating results, market capitalization, business climate, economic factors or
other negative events that may be outside the control of management could result in a material non-cash impairment charge in
the future. The annual goodwill impairment analysis performed during the fourth quarter of 2023 resulted in an impairment
charge for the Cabot reporting unit of $238.2 million. There can, however, be no assurance that we will not be required to take
an additional impairment charge in the future, which could have a material adverse effect on our results of operations.
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We may consume resources in pursuing business opportunities, financings or other transactions that are not consummated,
which may strain or divert our resources.
We anticipate that the investigation of various transactions, and the negotiation, drafting, and execution of relevant
agreements, disclosure documents and other instruments with respect to such transactions, will require substantial management
time and attention and substantial costs for financial advisors, accountants, attorneys and other advisors. If a decision is made
not to consummate a specific transaction, the costs incurred up to that point for the proposed transaction likely would not be
recoverable. Furthermore, even if an agreement is reached relating to a specific transaction, we may fail to consummate the
transaction for any number of reasons, including those beyond our control. Any such event could consume significant
management time and result in a loss to us of the related costs incurred, which could adversely affect our financial position and
our business.
Failure to establish and maintain effective internal controls could have a material adverse effect on the accuracy and timing
of our financial reporting in future periods.
As a publicly traded company, we are subject to the Securities Exchange Act of 1934 (the “Exchange Act”) and the
Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). The Sarbanes-Oxley Act requires that we maintain effective disclosure
controls and procedures and internal control over financial reporting. Any failure to maintain such internal controls could
adversely impact our ability to report our financial results on a timely and accurate basis. Any such failures could have a
material adverse effect on our financial results and investor confidence and the market for our common stock.
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None.
Item 1B—Unresolved Staff Comments
Cybersecurity Risk Management and Strategy
Item 1C—Cybersecurity
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality,
integrity, and availability of our critical systems and information. We design and assess our program based on the National
Institute of Standards and Technology Cybersecurity Framework (“NIST CSF”). This does not imply that we meet any
particular technical standards, specifications, or requirements, only that we use the NIST CSF as a guide to help us identify,
assess, and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and
shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management
program to other legal, compliance, strategic, operational, and financial risk areas.
Our cybersecurity risk management program includes:
•
•
•
•
•
•
•
risk assessments designed to help identify material cybersecurity risks to our critical systems and our broader
enterprise IT environment;
a security team principally responsible for implementing and managing (1) our cybersecurity risk assessment
processes, (2) our security controls, (3) technical security tools and safeguards and (4) our response to cybersecurity
incidents;
reviews and audits by our internal audit department;
the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security
controls;
cybersecurity awareness training of our employees, incident response personnel, and senior management;
a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and
a third-party risk management and oversight process for service providers, suppliers, and vendors.
We have experienced, and will continue to experience, cybersecurity incidents from time to time in the normal course of
business. However, based on our assessments, these incidents have not had a material impact, and we do not believe the
incidents have materially affected or will materially affect us, including our operations, business strategy, results of operations
or financial condition. For more information regarding risks we face from cybersecurity threats, please see Item 1A- Risk
Factors.
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated the oversight of
cybersecurity and other information technology risks to the Risk Committee. The Risk Committee oversees management’s
implementation of our cybersecurity risk management program.
The Risk Committee receives regular reports from management on our cybersecurity risks. In addition, management
updates the Risk Committee, as necessary, regarding significant cybersecurity incidents.
The Risk Committee regularly reports to the full Board regarding its activities, including those related to cybersecurity.
The full Board also receives briefings from management on our risk management program. Board members receive
presentations on cybersecurity topics from management, internal security staff or external experts as part of the Board’s
continuing education on topics that impact public companies.
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Our Chief Information Officer, Chief Risk, Strategy and Compliance Officer and General Counsel, are primarily
responsible for assessing and managing our material risks from cybersecurity threats. Our Chief Information Officer has
primary responsibility for our overall cybersecurity program and supervises both our internal cybersecurity personnel and our
retained external cybersecurity consultants. Our Chief Risk, Strategy and Compliance Officer has primary responsibility for our
enterprise risk management program, including oversight of our cybersecurity risk management program. Our general counsel
has primary responsibility for legal assessments, including assessments related to cybersecurity matters. Such individuals have
an average of over 15 years of prior work experience in various roles involving information technology (including information
security), risk and compliance or legal and risk analysis.
This team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various
means, which may include briefings from internal security personnel; threat intelligence and other information obtained from
governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by
security tools deployed in the IT environment.
Item 2—Properties
We lease office space for our corporate headquarters in San Diego, California. We also lease office space for our call
centers, internal legal and consumer support services in the United States, Costa Rica, India, the United Kingdom and other
European countries. We believe that our current leased facilities are generally well maintained and in good operating condition.
We believe that these facilities are suitable and sufficient for our operational needs. Our policy is to improve, replace, and
supplement the facilities as considered appropriate to meet the needs of our operations.
Item 3—Legal Proceedings
We are involved in disputes, legal actions, regulatory investigations, inquiries, and other actions from time to time in the
ordinary course of business. Although no assurance can be given with respect to the outcome of these or any other actions and
the effect such outcomes may have, based on our current knowledge, we believe any liability resulting from the outcome of
such disputes, legal actions, regulatory investigations, inquiries, and other actions will not have a material adverse effect on our
business, financial position or results of operations.
For additional information see “Note 13: Commitments and Contingencies” to the consolidated financial statements.
Not applicable.
Item 4—Mine Safety Disclosures
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PART II
Item 5—Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock is traded on the NASDAQ Global Select Market under the symbol “ECPG.”
The closing price of our common stock on February 15, 2024, was $51.02 per share and there were 22 stockholders of
record. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we
are unable to estimate the total number of beneficial owners of our stock represented by these stockholders of record.
Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or “filed” with the
SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or
Securities Exchange Act of 1934, each, as amended, except to the extent that we specifically incorporate it by reference into
such filing.
The following graph compares the total cumulative stockholder return on our common stock for the period from
December 31, 2018 through December 31, 2023, with the cumulative total return of (a) the NASDAQ Composite Index, (b) a
peer group consisting of B2Impact (previously “B2Holding”), Hoist Finance, Intrum, Kruk and PRA Group, Inc. which we
believe are comparable companies. The comparison assumes that $100 was invested on December 31, 2018, in our common
stock and in each of the comparison indices (including reinvestment of dividends). The stock price performance reflected in the
following graph is not necessarily indicative of future stock price performance.
Encore Capital Group, Inc.
NASDAQ Composite Index
Peer Group
12/18
100.00 $
100.00 $
100.00 $
12/19
150.47 $
136.69 $
127.45 $
12/20
165.74 $
198.10 $
122.50 $
12/21
264.30 $
242.03 $
149.24 $
12/22
203.97 $
163.28 $
98.64 $
12/23
215.93
236.17
106.17
$
$
$
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Dividend Policy
As a public company, we have never declared or paid dividends on our common stock. The declaration, payment, and
amount of future dividends, if any, is subject to the discretion of our Board of Directors, which may review our dividend policy
from time to time in light of the then existing relevant facts and circumstances. Our ability to pay dividends may be restricted
by covenants in certain of the indentures governing our senior secured notes and by the terms of our global senior secured
revolving credit facility (“Global Senior Facility”). We may also be subject to additional dividend restrictions under future debt
agreements or the terms of securities we may issue in the future.
Share Repurchases
In August 2015, our Board of Directors approved a $50.0 million share repurchase program. In May 2021, we announced
that the Board of Directors had approved an increase in the size of the repurchase program from $50.0 million to $300.0 million
(an increase of $250.0 million). 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 management and our 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
any time at our discretion. During the year ended December 31, 2022, we repurchased 1,497,184 shares of our common stock
for approximately $86.9 million under the share repurchase program. Our practice is to retire the shares repurchased. We did
not make any repurchases under the share repurchase program during the year ended December 31, 2023.
Recent Sales of Unregistered Securities
None.
Equity Compensation Plan Information
See Item 12—“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Item 6—[Reserved]
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Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to help investors understand our business, financial condition, results of
operations, liquidity and capital resources. You should read this discussion together with our consolidated financial statements
and related notes thereto included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains
“forward-looking statements” relating to Encore 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, and financing needs or plans, 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 this Annual Report on Form 10-K under “Part I, Item 1A—Risk Factors,” 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 in Europe.
Encore Capital Group, Inc. (“Encore”) has three business units: MCM, which consists of Midland Credit Management,
Inc. and its subsidiaries and domestic affiliates; Cabot, which consists of Cabot Credit Management Limited (“CCM”) and its
subsidiaries and European affiliates, and LAAP, which is comprised of our investments and operations in Latin America and
Asia-Pacific.
MCM (United States)
Through MCM, we are a market leader in portfolio purchasing and recovery in the United States.
Cabot (Europe)
Through Cabot, we are one of the largest credit management services providers in Europe and the United 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 through Wescot
Credit Services Limited (“Wescot”), a leading UK contingency debt collection and BPO services company.
LAAP (Latin America and Asia-Pacific)
We have purchased non-performing loans in Mexico. Additionally, we have invested in Encore Asset Reconstruction
Company (“EARC”) in India.
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 the United States
and United Kingdom and strengthening and developing our business in the rest of Europe.
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Macroeconomic Update
During 2021, excess consumer liquidity resulting from the COVID-19 pandemic led to consumer behavior (particularly in
the U.S.) that contributed to record collections. Similarly, as reported by leading financial industry publications, excess
consumer liquidity resulted in lower levels of delinquencies and charge offs for leading lenders. As a result, 2021 was a period
of decreased supply and competitive pricing.
During 2022, consumer behavior in the U.S. that contributed to record collections in 2021 normalized, particularly in the
second half of the year. Delinquencies, charge offs and market supply remained at lower levels primarily for the first half of the
year, resulting in pressure on portfolio pricing. As the year progressed, we began to see signs of increased delinquencies and
charge offs in the U.S., which we believe contributed to an increase in portfolio supply. Portfolio pricing in the U.S. in the
fourth quarter began to soften, while pricing in the U.K. and Europe remained competitive. Throughout 2022 we noted higher
interest rates, elevated levels of inflation, agent staffing challenges as a result of the tight labor market and large foreign
exchange rate fluctuations.
During 2023, we believe increased supply led to improved portfolio pricing in the U.S. Inflation in the U.K. put pressure
on wages and other costs early in the year and we took action to control our cost base, including a headcount reduction in
support functions at Cabot. Despite higher interest rates impacting funding costs for market participants in 2023, we believe that
the portfolio pricing environment in the U.K. and Europe did not yet fully reflect increased funding costs that resulted from
higher interest rates.
Government Regulation
As discussed in more detail under “Part I - Item 1—Business - Government Regulation” contained in this Annual Report
on Form 10-K, our operations in the 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. Additionally, our operations in Europe 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.
Portfolio Purchasing and Recovery
MCM (United States)
In the United States, the defaulted consumer receivable portfolios we purchase are primarily charged-off credit card debt
portfolios. A small percentage of our capital deployment in the 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 our U.S. operations. These methods and models generally 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 in the United States.
Cabot (Europe)
In Europe, our purchased defaulted 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 generally 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 the United Kingdom and
Europe.
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Purchases and Collections
Portfolio Pricing, Supply and Demand
MCM (United States)
With lending surpassing pre-pandemic levels and with rising delinquency rates, we have seen an increase in supply.
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 fourth quarter continued to
improve as a result of increased supply. 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 continued growth in
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 increasing 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
and fluctuating volumes.
Cabot (Europe)
The UK 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 had embedded debt sales as an integral
part of their business models. The percentage of volume that is sold in multi-year forward flow arrangements is increasing.
The Spain, France, and Portugal debt markets continue to be three of the largest in Europe with significant debt sales and
an expectation of a significant amount of debt to be sold in the future. Financial institutions continue to look to dispose of non-
performing loans in these markets.
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 all 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 slightly below pre-
pandemic levels while portfolio pricing remains competitive across our European footprint; however we began to see
improvement in pricing in the fourth quarter.
Purchases by Geographic Location
The following table summarizes purchases of receivable portfolios by geographic location during the periods presented (in
thousands):
MCM (United States)
Cabot (Europe)
Total purchases of receivable portfolios
Year Ended December 31,
2023
2022
2021
$
$
814,557 $
259,255
1,073,812 $
556,000 $
244,507
800,507 $
408,741
255,788
664,529
In the United States, capital deployment increased during the year ended December 31, 2023, as compared to 2022. The
majority of our deployments in the U.S. come 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 the U.S. were robust
as supply increased and pricing improved. Capital deployment increased for the year ended December 31, 2022, as compared to
2021, primarily due to an increase in supply in the U.S. to pre-pandemic levels.
In Europe, capital deployment increased during the year ended December 31, 2023, as compared to 2022. Pricing
continues to remain competitive in Europe and as a result purchases were limited for all the periods presented as compared to
pre-pandemic levels. In Europe, bank delinquencies remain at relatively low levels, and the level of outstanding unsecured
consumer borrowings, while increasing, is still below pre-pandemic levels. Capital deployment decreased for the year ended
December 31, 2022, as compared to 2021, primarily due to the unfavorable impact from foreign currency translation driven by
the strengthening of the U.S. dollar against the British Pound.
In addition to the purchases of receivable portfolios discussed above, during the years ended December 31, 2023, 2022,
and 2021, we also invested $26.9 million, $39.3 million, and $17.1 million in REO assets, respectively.
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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):
Year Ended December 31,
2023
2022
2021
MCM (United States):
Call center and digital collections
$
783,164 $
772,728 $
Legal collections
Collection agencies
Subtotal
Cabot (Europe):
Call center and digital collections
Legal collections
Collection agencies
Subtotal
Other geographies:
971,459
662,810
7,429
526,197
5,221
581,078
1,126
1,314,582
1,354,932
1,641,698
217,784
189,406
136,841
544,031
3,954
203,378
193,348
156,545
553,271
3,334
259,666
203,339
181,974
644,979
20,682
Total collections from purchased receivables
$
1,862,567 $
1,911,537 $
2,307,359
Gross collections from purchased receivables remained relatively stable during the year ended December 31, 2023, as
compared to gross collections during the year ended December 31, 2022.
Gross collections from purchased receivables decreased $395.8 million, or 17.2%, to $1,911.5 million during the year
ended December 31, 2022, from $2,307.4 million during the year ended December 31, 2021. The decrease of collections in the
United States was primarily a result of an unusually high level of collections in 2021 resulting from changes in consumer
behavior during the COVID-19 pandemic. The decrease was 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 in 2021, continued through the first half of 2022. We believe the pandemic-related drivers of this changed
behavior have normalized. The decrease in collections from purchased receivables in Europe was primarily due to the
unfavorable impact from foreign currency translation, primarily by the strengthening of the U.S. dollar against the British
Pound. In addition, continuing labor market tightness in the UK affected agent staffing levels and, consequently, mildly
impacted collections for the year.
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Table of Contents
Results of Operations
Results of operations, in dollars and as a percentage of total revenues, were as follows for the periods presented (in
thousands, except percentages):
2023
2022
2021
Year Ended December 31,
Revenues
Revenue from receivable portfolios
$ 1,204,437
98.5 % $ 1,202,361
85.9 % $ 1,287,730
Changes in recoveries
(82,530)
(6.7) %
93,145
6.7 %
199,136
Total debt purchasing revenue
1,121,907
91.8 % 1,295,506
92.6 % 1,486,866
Servicing revenue
Other revenues
Total revenues
Operating expenses
83,136
17,637
6.8 %
1.4 %
94,922
7,919
6.8 %
120,778
0.6 %
6,855
1,222,680
100.0 % 1,398,347
100.0 % 1,614,499
100.0 %
Salaries and employee benefits
Cost of legal collections
General and administrative expenses
Other operating expenses
Collection agency commissions
Depreciation and amortization
Goodwill impairment
Impairment of intangible assets
391,532
224,252
144,862
111,179
35,657
41,737
238,200
18,726
32.0 %
375,135
26.8 %
385,178
18.3 %
217,944
15.6 %
254,280
11.8 %
145,798
10.4 %
137,695
9.1 %
111,234
8.0 %
106,938
2.9 %
3.4 %
19.5 %
35,568
46,419
—
1.5 %
4,075
2.5 %
3.3 %
— %
0.3 %
47,057
50,079
—
—
Total operating expenses
1,206,145
98.5 %
936,173
66.9 %
981,227
16,535
1.5 %
462,174
33.1 %
633,272
79.8 %
12.3 %
92.1 %
7.5 %
0.4 %
23.9 %
15.7 %
8.6 %
6.6 %
2.9 %
3.1 %
— %
— %
60.8 %
39.2 %
27.0 %
(5.2) %
21.8 %
Income from operations
Other expense
Interest expense
Loss on extinguishment of debt
Other income (expense)
Total other expense
(Loss) income before income taxes
Provision for income taxes
Net (loss) income
Net income attributable to
noncontrolling interest
Net (loss) income attributable to Encore
Capital Group, Inc. stockholders
(201,877)
(16.5) %
(153,308)
(11.0) %
(169,647)
(10.5) %
—
5,078
(196,799)
(180,264)
(26,228)
— %
0.3 %
—
2,123
— %
(9,300)
0.1 %
(17,784)
(0.6) %
(1.1) %
(16.2) %
(151,185)
(10.9) %
(196,731)
(12.2) %
(14.7) %
310,989
22.2 %
436,541
(2.1) %
(116,425)
(8.3) %
(85,340)
(206,492)
(16.8) %
194,564
13.9 %
351,201
—
— %
—
— %
(419)
(0.1) %
$ (206,492)
(16.8) % $ 194,564
13.9 % $ 350,782
21.7 %
32
Table of Contents
Comparison of Results of Operations
Our Annual Report on Form 10-K for the year ended December 31, 2022 includes discussion and analysis of our financial
condition and results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021 in
Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
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
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.
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
the accounting standard for Financial Instruments - Credit Losses (“CECL”) in January 2020. 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
consolidated statements of operations.
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 Europe.
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 in Europe and LAAP.
33
Table of Contents
The following table summarizes revenues for the periods presented (in thousands, except percentages):
Year Ended December 31,
2023
2022
$ Change
% Change
Revenue recognized from portfolio basis
$
1,176,835 $
1,169,010 $
ZBA revenue
Revenue from receivable portfolios
Recoveries (below) above forecast
Changes in expected future recoveries
Changes in recoveries
Debt purchasing revenue
27,602
33,351
1,204,437
1,202,361
(33,405)
(49,125)
(82,530)
29,253
63,892
93,145
1,121,907
1,295,506
7,825
(5,749)
2,076
(62,658)
(113,017)
(175,675)
(173,599)
Servicing revenue
Other revenues
Total revenues
83,136
17,637
94,922
7,919
(11,786)
9,718
$
1,222,680 $
1,398,347 $
(175,667)
0.7 %
(17.2) %
0.2 %
(214.2) %
(176.9) %
(188.6) %
(13.4) %
(12.4) %
122.7 %
(12.6) %
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 an unfavorable impact on our international revenues, and the weakening of the U.S.
dollar relative to other foreign currencies has a favorable impact on our international revenues. There was no material foreign
currency translation impact to our revenue for the year ended December 31, 2023, as compared to the year ended December 31,
2022.
Revenue recognized from portfolio basis stayed consistent during the year ended December 31, 2023 as compared to the
year ended December 31, 2022.
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 under-performed the forecasted collections by approximately $13.3 million and $33.4 million during the three
months and year ended December 31, 2023, respectively. The under-performance was primarily attributable to shortfalls in
collections for our 2022 and 2021 U.S. vintages as consumers transitioned back to more normalized payment behavior.
Recoveries below forecast were approximately $22.2 million during the three months ended December 31, 2022, recoveries
above forecast were approximately $29.3 million during the year ended December 31, 2022.
We reassess the forecasts of expected lifetime recoveries each quarter by considering, among other factors, historical and
current collection performance, changes in consumer behaviors, and macroeconomic environment. As a result, we have updated
our forecast, including reducing expected future recoveries for certain static pools, primarily the 2022 and 2021 U.S. vintages,
where the initial cash flow forecasts were established during a period marked by changed consumer behavior, which caused
challenges in forecasting. The changes to the forecast, when discounted to present value, resulted in a net negative change in
expected future recoveries of approximately $39.2 million for the three months ended December 31, 2023. This negative
change in expected future recoveries when combined, together with net $9.9 million of negative changes in expected future
recoveries recorded in the first nine months of the year resulted in a net negative change in expected future recoveries of
approximately $49.1 million during the year ended December 31, 2023. We recorded approximately $64.0 million net negative
change in expected future period recoveries during the three months ended December 31, 2022 and $63.9 million in net positive
change in expected future period recoveries during the year ended December 31, 2022.
34
Table of Contents
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):
Year Ended December 31, 2023
As of December 31, 2023
Collections
Revenue from
Receivable
Portfolios
Changes in
Recoveries
Investment in
Receivable
Portfolios
Monthly EIR
United States:
ZBA
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Subtotal
Europe:
ZBA
2013
2014
2015
2016 (1)
2017
2018
2019
2020
2021
2022
2023
Subtotal
Other geographies:(2)
All vintages
Subtotal
Total
_______________________
$
27,584 $
13,276
15,881
34,529
20,910
19,518
35,130
57,985
89,548
164,106
194,522
188,895
268,516
184,182
1,314,582
18
57,747
54,537
36,237
35,272
48,763
49,675
54,544
37,363
58,515
70,385
40,975
544,031
3,954
3,954
1,862,567 $
$
27,584 $
12,519
14,209
32,570
13,873
10,665
19,773
35,121
51,015
91,341
104,555
109,241
179,175
136,249
837,890
18
51,931
44,640
27,317
24,957
29,652
31,967
31,767
23,939
40,972
40,530
18,857
366,547
—
—
1,204,437 $
— $
434
1,062
157
3,965
1,541
2,343
3,380
(6,206)
(2,668)
(3,622)
(23,969)
(51,222)
29,359
(45,446)
—
(12,684)
(4,516)
(1,928)
2,863
(4,282)
(10,229)
1,059
920
(10,828)
(5,161)
7,258
(37,528)
—
1,003
2,479
5,601
16,271
19,042
33,504
42,838
83,861
160,976
187,358
175,906
398,824
793,117
1,920,780
—
125,541
119,369
89,034
76,499
120,508
157,616
133,484
83,638
166,490
199,024
248,185
1,519,388
444
444
(82,530) $
28,264
28,264
3,468,432
— %
88.6 %
42.0 %
40.5 %
6.7 %
3.9 %
4.2 %
5.5 %
4.0 %
3.8 %
3.7 %
3.9 %
3.1 %
3.2 %
3.7 %
— %
3.2 %
3.0 %
2.5 %
2.8 %
1.9 %
1.6 %
1.9 %
2.2 %
1.9 %
1.6 %
1.5 %
2.0 %
— %
— %
3.0 %
(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.
35
Table of Contents
United States:
ZBA
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Subtotal
Europe:
ZBA
2013
2014
2015
2016 (1)
2017
2018
2019
2020
2021
2022
Subtotal
Other geographies: (2)
All vintages
Subtotal
Total
_______________________
Year Ended December 31, 2022
As of December 31, 2022
Collections
Revenue from
Receivable
Portfolios
Changes in
Recoveries
Investment in
Receivable
Portfolios
Monthly EIR
$
33,317
$
33,317
$
—
$
18,425
20,173
43,687
25,212
25,655
51,650
85,348
144,566
256,444
311,573
240,605
98,277
1,354,932
34
68,938
65,156
42,640
40,200
61,762
61,691
63,607
45,757
66,529
36,957
16,490
17,031
44,642
16,400
13,960
28,222
52,769
73,850
130,768
148,651
160,520
79,830
816,450
34
59,888
49,286
30,477
30,292
38,988
39,718
38,051
28,083
46,451
24,643
553,271
385,911
1,745
3,184
(3,503)
5,244
1,530
3,519
3,275
30,015
62,008
83,962
(19,221)
7,251
179,009
—
(12,516)
3,070
(2,377)
(5,771)
(27,217)
(23,906)
(5,338)
3,253
(12,637)
(2,425)
(85,864)
—
1,328
3,090
7,400
19,351
26,369
46,633
62,577
128,965
236,904
281,325
280,247
542,063
1,636,252
—
137,297
127,791
95,343
81,618
138,529
179,646
148,997
93,273
188,975
227,353
1,418,822
3,334
3,334
—
—
—
—
33,187
33,187
$
1,911,537
$
1,202,361
$
93,145
$
3,088,261
— %
88.6 %
42.0 %
40.5 %
6.7 %
3.9 %
4.1 %
5.5 %
3.9 %
3.8 %
3.7 %
3.9 %
3.1 %
4.0 %
— %
3.2 %
3.0 %
2.5 %
2.8 %
1.9 %
1.6 %
1.9 %
2.2 %
1.9 %
1.6 %
2.1 %
— %
— %
3.1 %
(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.
The decrease in servicing revenues during the year ended December 31, 2023, as compared to the year ended
December 31, 2022, was primarily attributable to reduced service demand from BPO clients.
Other revenues increased during the year ended December 31, 2023, as compared to the year ended December 31, 2022,
primarily driven by the increased sale of real estate assets.
36
Table of Contents
Operating Expenses
The following table summarizes operating expenses during the periods presented (in thousands, except percentages):
Salaries and employee benefits
Cost of legal collections
General and administrative expenses
Other operating expenses
Collection agency commissions
Depreciation and amortization
Goodwill impairment
Impairment of intangible assets
Total operating expenses
Year Ended December 31,
2023
2022
$ Change
% Change
$
391,532 $
375,135 $
224,252
144,862
111,179
35,657
41,737
238,200
18,726
217,944
145,798
111,234
35,568
46,419
—
4,075
16,397
6,308
(936)
(55)
89
(4,682)
238,200
14,651
$
1,206,145 $
936,173 $
269,972
4.4 %
2.9 %
(0.6) %
— %
0.3 %
(10.1) %
100.0 %
359.5 %
28.8 %
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. There was no
material foreign currency translation impact to operating expenses for the year ended December 31, 2023, as compared to the
year ended December 31, 2022.
Operating expenses are explained in more detail as follows:
Salaries and Employee Benefits
The increase in salaries and employee benefits during the year ended December 31, 2023, compared to the year ended
December 31, 2022, was primarily due to the following reasons:
•
•
•
An increase in salaries and bonus and payroll related taxes of approximately $10.5 million primarily due to an increase
in overall headcount and market adjustments; and
Costs relating to headcount reductions in Europe of approximately $7.4 million; and
The increase was partially offset by decreased stock-based compensation expense of $1.5 million primarily attributed
to forfeiture of certain stock awards.
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
consolidated statements of operations.
The following table summarizes our cost of legal collections during the periods presented (in thousands, except
percentages):
Court costs
Legal collection fees
Total cost of legal collections
Year Ended December 31,
2023
2022
$ Change
% Change
$
$
134,200 $
125,289 $
90,052
92,655
224,252 $
217,944 $
8,911
(2,603)
6,308
7.1 %
(2.8) %
2.9 %
The increase in cost of legal collections during the year ended December 31, 2023, compared to the year ended
December 31, 2022, was primarily due to an increase in court costs due to more placements in the legal collection channel.
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Table of Contents
General and Administrative Expenses
The decrease in general and administrative expenses during the year ended December 31, 2023, compared to the year
ended December 31, 2022, was primarily due to the following reasons:
•
•
A decrease in rent and lease expenses of approximately $7.7 million and a decrease in legal expenses and consulting
fees of approximately $7.3 million; and
This decrease was partial offset by an increase in general and administrative expense of approximately $13.7 million
primarily relating to costs associated with information technology, business travel, and facilities expense.
Other Operating Expenses
Other operating expenses remained relatively consistent during the year ended December 31, 2023, compared to the year
ended December 31, 2022.
Collection Agency Commissions
Collection agency commissions are commissions paid to third-party collection agencies. Collections through the
collections agencies channel are predominately in Europe 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. Collection agency commissions were consistent during the year
ended December 31, 2023, compared to the year ended December 31, 2022.
Depreciation and Amortization
The decrease in depreciation and amortization expenses during the year ended December 31, 2023, compared to the year
ended December 31, 2022, was primarily due to a decrease in depreciation expenses of approximately $2.0 million and a
decrease in amortizable expenses of approximately $2.7 million as a result of smaller depreciable and amortizable asset
balances during the year ended December 31, 2023, compared to the year ended December 31, 2022.
Goodwill Impairment
During the fourth quarter of 2023, we performed our annual goodwill impairment test and concluded that the fair value of
our Cabot reporting was less than its carrying amount. As a result, we recorded an impairment charge of $238.2 million to
goodwill during the year ended December 31, 2023. Refer to “Note 15: Goodwill and Identified Intangible Assets” to our
consolidated financial statements for further details.
Impairment of Intangible Assets
In connection with our annual goodwill impairment testing discussed above, we also tested for impairment of our long-
lived intangible assets during the fourth quarter of 2023. As a result of the test, we recorded an impairment charge of
approximately $18.7 million for our acquired definite-lived intangible assets during the year ended December 31, 2023. We
recorded an impairment charge of $4.1 million for our acquired definite-lived intangible assets during the year ended
December 31, 2022. Refer to “Note 15: Goodwill and Identified Intangible Assets” to our consolidated financial statements for
further details.
Interest Expense
The following table summarizes our interest expense (in thousands, except percentages):
Year Ended December 31,
Stated interest on debt obligations
Amortization of debt issuance costs
Amortization of debt discount
Total interest expense
$ Change
% Change
$
2023
184,717 $
15,670
2022
137,434 $
14,539
1,490
1,335
47,283
1,131
155
$
201,877 $
153,308 $
48,569
34.4 %
7.8 %
11.6 %
31.7 %
The increase in interest expense during the year ended December 31, 2023, compared to the year ended December 31,
2022, was primarily due to the following reasons:
•
•
The effect resulting from rising interest rates of approximately $31.8 million; and
The effect resulting from increased average debt balance of approximately $13.2 million.
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Table of Contents
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 $5.1 million and $2.1
million during the years ended December 31, 2023, and 2022, respectively.
Provision for Income Taxes
During the years ended December 31, 2023, and 2022, we recorded income tax provisions of $26.2 million and $116.4
million, respectively.
The effective tax rates for the respective periods are shown below:
Federal provision
State provision
Change in valuation allowance(1)
Goodwill impairment (2)
Taxable gain (deductible loss) in foreign jurisdiction (3)
Forfeit benefit due to merger/liquidations (4)
Other
Effective rate
________________________
Year Ended December 31,
2023
2022
21.0 %
(3.0) %
7.3 %
(28.3) %
2.9 %
(14.7) %
0.3 %
(14.5) %
21.0 %
5.0 %
13.2 %
— %
(2.7) %
— %
0.9 %
37.4 %
(1)
In 2023, includes reduction in valuation allowance due to the forfeit of tax benefits on merger or liquidation of foreign subsidiaries that maintained full
valuation allowances on their deferred tax assets. In 2022, includes valuation allowance recorded on U.K. deferred tax assets.
(2) During the fourth quarter of 2023, we recorded a non-cash goodwill impairment charge of $238.2 million at the Cabot reporting unit. Refer to “Note 15:
Goodwill and Identified Intangible Assets” to our consolidated financial statements for further details.
(3)
In 2023, represents a taxable gain recognized in a foreign subsidiary. In 2022, represents deductible loss recognized in a foreign subsidiary that
maintains a full valuation allowance on its deferred tax assets. Accordingly, the deductible loss increased the valuation allowance and did not result in
any tax benefit during the year ended December 31, 2022.
(4) Represents the forfeit of tax benefits on merger or liquidation of foreign subsidiaries that maintained full valuation allowances on their deferred tax
asset.
Our effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected to the extent
earnings are lower than anticipated in countries that have lower statutory tax rates and higher than anticipated in countries that
have higher statutory tax rates.
39
Table of Contents
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):
GAAP net (loss) income, as reported
$
(206,492) $
194,564 $
351,201
Year Ended December 31,
2023
2022
2021
Adjustments:
Interest expense
Loss on extinguishment of debt
Interest income
Provision for income taxes
Depreciation and amortization
Net gain on derivative instruments(1)
Stock-based compensation expense
Acquisition, integration and restructuring related expenses(2)
Goodwill impairment(3)
Impairment of intangible assets(3)
Adjusted EBITDA
Collections applied to principal balance(4)
________________________
201,877
—
153,308
—
(4,746)
(1,774)
26,228
41,737
(3,170)
13,854
7,401
238,200
18,726
116,425
46,419
—
15,402
1,213
—
4,075
169,647
9,300
(1,738)
85,340
50,079
—
18,330
20,559
—
—
$
$
333,615 $
776,280 $
529,632 $
635,262 $
702,718
843,087
(1) Amount represents gain or loss recognized on derivative instruments that are not designated as hedging instruments or gain or loss recognized on
derivative instruments upon dedesignation of hedge relationships. We adjust for this amount because we believe the gain or loss on derivative contracts
is not indicative of ongoing operations.
(2) 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.
(3) During the fourth quarter of 2023, we recorded a non-cash goodwill impairment charge of $238.2 million and a non-cash impairment of intangible
assets of $18.7 million. We recorded a non-cash impairment of intangible assets of $4.1 million during the year ended December 31, 2022. We believe
these non-cash impairment charges are not indicative of ongoing operations, therefore adjusting for these expenses enhances comparability to prior
periods, anticipated future periods, and our competitors’ results. Refer to “Note 15: Goodwill and Identified Intangible Assets” to our consolidated
financial statements for further details.
(4) Collections applied to principal balance is calculated in the table below:
Collections applied to investment in receivable portfolios, net
Changes in recoveries
REO proceeds applied to basis
Collections applied to principal balance
Year Ended December 31,
2023
2022
2021
$
$
658,130 $
709,176 $
1,019,629
82,530
35,620
(93,145)
19,231
776,280 $
635,262 $
(199,136)
22,594
843,087
40
Table of Contents
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. 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 our U.S. dollar
reporting currency. For example, the strengthening of the U.S. dollar relative to other foreign currencies has an unfavorable
reporting impact on our international purchases, collections, and ERC, and the weakening of the U.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.
41
Table of Contents
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
Purchase
Price(1)
<2014
2014
2015
2016
2017
Cumulative Collections through December 31, 2023
2019
2020
2018
2021
2022
2023
Total(2)
CCMM(3)
United States:
<2014
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Subtotal
Europe:
<2014
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Subtotal
$ 3,244,415 $ 6,065,954 $ 1,048,635 $ 768,510 $ 523,386 $ 377,466 $ 277,776 $ 221,292 $ 169,334 $ 152,031 $ 115,602 $
142,147
186,391
283,035
111,902
—
—
—
—
—
—
1,100,941
517,642
499,036
552,974
527,499
629,340
675,374
538,032
404,085
550,591
811,703
8,950,691
25,212
25,655
51,650
85,348
144,566
256,444
311,573
240,605
98,277
—
1,354,932
34,896
42,774
87,717
144,243
228,919
400,250
430,514
120,354
—
—
1,641,698
47,628
64,133
116,452
193,328
308,302
416,315
213,450
—
—
—
1,528,942
—
—
—
—
—
—
—
—
—
—
6,065,954
144,178
—
—
—
—
—
—
—
—
—
1,192,813
69,059
85,042
159,279
255,048
351,696
174,693
—
—
—
—
1,316,109
94,929
125,673
234,690
315,853
175,042
—
—
—
—
—
1,223,963
216,357
231,102
110,875
—
—
—
—
—
—
—
1,081,720
307,814
105,610
—
—
—
—
—
—
—
—
1,181,934
91,270 $ 9,811,256
1,103,130
20,910
885,898
19,518
1,078,828
35,130
1,163,707
57,985
1,298,073
89,548
1,411,808
164,106
1,150,059
194,522
549,854
188,895
366,793
268,516
184,182
184,182
19,003,588
1,314,582
619,079
623,129
419,941
258,218
461,571
432,258
273,354
116,227
255,788
244,508
259,255
3,963,328
134,259
—
—
—
—
—
—
—
—
—
—
134,259
249,307
135,549
—
—
—
—
—
—
—
—
—
384,856
212,129
198,127
65,870
—
—
—
—
—
—
—
—
476,126
165,610
156,665
127,084
44,641
—
—
—
—
—
—
—
494,000
146,993
137,806
103,823
97,587
68,111
—
—
—
—
—
—
554,320
132,663
129,033
88,065
83,107
152,926
49,383
—
—
—
—
—
635,177
113,228
105,337
72,277
63,198
118,794
118,266
44,118
—
—
—
—
635,218
93,203
84,255
55,261
51,609
87,549
78,846
80,502
22,721
—
—
—
553,946
93,907
84,169
57,817
51,017
86,107
80,629
88,448
59,803
43,082
—
—
644,979
68,938
65,156
42,660
40,214
61,762
61,691
63,607
45,757
66,529
36,957
—
553,271
57,747
54,537
36,249
35,278
48,763
49,675
54,544
37,363
58,515
70,385
40,975
544,031
1,467,984
1,150,634
649,106
466,651
624,012
438,490
331,219
165,644
168,126
107,342
40,975
5,610,183
Other geographies(4):
All vintages
Subtotal
Total
340,283
340,283
546,236
546,236
$ 13,254,302 $ 6,210,678 $ 1,607,497 $ 1,700,725 $ 1,685,604 $ 1,767,644 $ 1,967,620 $ 2,026,928 $ 2,111,848 $ 2,307,359 $ 1,911,537 $ 1,862,567 $ 25,160,007
112,383
112,383
109,884
109,884
108,480
108,480
28,960
28,960
29,828
29,828
20,682
20,682
75,601
75,601
10,465
10,465
42,665
42,665
3,954
3,954
3,334
3,334
3.0
2.1
1.8
2.0
2.2
2.1
2.1
2.1
1.4
0.7
0.2
2.1
2.4
1.8
1.5
1.8
1.4
1.0
1.2
1.4
0.7
0.4
0.2
1.4
1.6
1.6
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 December 31, 2023, excluding collections on behalf of others.
(3) Cumulative Collections Money Multiple (“CCMM”) through December 31, 2023 refers to cumulative collections as a multiple of purchase price.
(4) Annual pool groups for other geographies have been aggregated for disclosure purposes.
42
Table of Contents
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):
Purchase Price(1)
Historical
Collections(2)
Estimated
Remaining
Collections
Total Estimated
Gross Collections
Purchase Price
Multiple (3)
$
United States:
<2014(4)
2014(4)
2015
2016
2017
2018
2019
2020
2021
2022
2023
Subtotal
Europe:
<2014(4)
2014(4)
2015(4)
2016
2017
2018
2019
2020
2021
2022
2023
Subtotal
Other geographies(5):
All vintages
Subtotal
Total
$
3,244,415 $
517,642
499,036
552,974
527,499
629,340
675,374
538,032
404,085
550,591
811,703
8,950,691
619,079
623,129
419,941
258,218
461,571
432,258
273,354
116,227
255,788
244,508
259,255
3,963,328
9,811,256 $
1,103,130
885,898
1,078,828
1,163,707
1,298,073
1,411,808
1,150,059
549,854
366,793
184,182
19,003,588
1,467,984
1,150,634
649,106
466,651
624,012
438,490
331,219
165,644
168,126
107,342
40,975
5,610,183
194,082 $
48,769
42,100
75,541
117,938
192,515
351,134
406,977
395,740
769,552
1,720,816
4,315,164
513,334
425,517
266,604
220,295
277,461
328,785
299,107
193,546
364,176
374,345
443,283
3,706,453
10,005,338
1,151,899
927,998
1,154,369
1,281,645
1,490,588
1,762,942
1,557,036
945,594
1,136,345
1,904,998
23,318,752
1,981,318
1,576,151
915,710
686,946
901,473
767,275
630,326
359,190
532,302
481,687
484,258
9,316,636
340,283
340,283
13,254,302 $
546,236
546,236
25,160,007 $
44,043
44,043
8,065,660 $
590,279
590,279
33,225,667
3.1
2.2
1.9
2.1
2.4
2.4
2.6
2.9
2.3
2.1
2.3
2.6
3.2
2.5
2.2
2.7
2.0
1.8
2.3
3.1
2.1
2.0
1.9
2.4
1.7
1.7
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 December 31, 2023, excluding collections on behalf of others.
(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.
43
Table of Contents
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):
2024
2025
2026
2027
2028
2029
2030
2031
2032
>2032
Total(2)
Estimated Remaining Gross Collections by Year of Purchase(1)
United States:
<2014(3)
2014(3)
2015
2016
2017
2018
2019
2020
2021
2022
2023
$ 64,621 $ 43,503 $ 30,166 $ 20,809 $ 14,101 $ 9,245 $ 5,817 $ 3,416 $ 1,852 $
552 $ 194,082
16,663
14,243
26,016
38,012
60,013
114,922
128,483
124,813
10,731
8,737
15,898
25,261
42,299
76,489
90,491
85,880
6,619
5,838
10,400
17,218
28,644
51,092
60,127
59,586
4,668
4,106
7,097
11,459
3,293
2,894
4,990
7,885
19,531
12,850
2,324
2,042
3,515
5,560
8,859
1,641
1,444
2,481
3,930
6,254
34,587
23,533
15,620
10,804
40,826
27,815
18,938
12,630
39,589
26,905
18,602
12,849
1,159
1,023
1,754
2,786
4,429
7,611
8,798
8,782
819
727
1,244
1,980
3,146
852
1,046
2,146
48,769
42,100
75,541
3,847
117,938
6,490
192,515
5,375
11,101
351,134
6,206
12,663
406,977
6,114
12,620
395,740
263,708
164,126
106,768
73,089
49,315
34,393
24,376
17,385
12,171
24,221
769,552
408,039
450,141
307,426
179,631
118,734
79,619
54,977
38,902
27,642
55,705
1,720,816
Subtotal
1,259,533
1,013,556
683,884
435,392
292,315
198,717
137,203
96,045
67,276
131,243
4,315,164
Europe:
<2014(3)
2014(3)
2015(3)
2016
2017
2018
2019
2020
2021
2022
2023
56,423
52,008
33,929
34,711
41,371
48,209
48,511
35,681
58,175
67,216
81,329
51,891
47,266
30,277
27,739
36,208
41,516
41,862
29,008
50,910
58,144
72,583
48,142
42,477
27,523
24,941
30,976
36,989
33,953
24,822
45,467
48,547
59,508
44,626
41,449
38,306
35,262
32,752
29,925
134,558
513,334
38,109
34,597
31,869
28,561
26,311
24,054
100,265
425,517
24,638
21,928
19,867
17,827
15,793
14,604
60,218
266,604
22,248
18,190
16,055
13,676
11,826
10,154
40,755
220,295
27,631
22,991
19,957
17,558
15,139
13,264
52,366
277,461
32,962
28,087
24,269
20,968
18,281
15,871
61,633
328,785
28,202
23,731
20,891
17,890
15,369
13,547
55,151
299,107
19,416
14,837
11,801
10,333
8,418
7,445
31,785
193,546
38,842
33,059
26,611
21,464
18,148
15,494
56,006
364,176
40,405
32,848
27,118
22,323
17,753
14,593
45,398
374,345
49,276
39,509
31,380
24,794
20,039
16,357
48,508
443,283
Subtotal
557,563
487,404
423,345
366,355
311,226
268,124
230,656
199,829
175,308
686,643
3,706,453
Other geographies(4):
All vintages
Subtotal
Portfolio
ERC
REO
ERC(5)
7,214
7,214
5,981
5,981
4,970
4,970
4,315
4,315
3,757
3,757
3,392
3,392
3,035
3,035
2,673
2,673
2,260
2,260
6,446
6,446
44,043
44,043
1,824,310
1,506,941
1,112,199
806,062
607,298
470,233
370,894
298,547
244,844
824,332
8,065,660
34,929
23,289
26,639
19,090
12,886
4,926
3,474
1,020
—
—
126,253
Total ERC $ 1,859,239 $ 1,530,230 $ 1,138,838 $ 825,152 $ 620,184 $ 475,159 $ 374,368 $ 299,567 $ 244,844 $ 824,332 $ 8,191,913
________________________
(1) As of December 31, 2023, ERC for Zero Basis Portfolios includes approximately $51.7 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 include approximately $48.7 million from
non-accrual portfolios, primarily in other geographies.
(2) Represents the expected remaining gross cash collections over a 180-month period. As of December 31, 2023, ERC for 84-month and 120-month
periods were:
United States
Europe
Other geographies
Portfolio ERC
REO ERC
Total ERC
84-Month ERC
120-Month ERC
$
$
4,020,600 $
2,644,673
32,664
6,697,937
125,233
6,823,170 $
4,230,518
3,174,063
39,422
7,444,003
126,253
7,570,256
(3) Includes portfolios acquired in connection with certain business combinations.
(4) Annual pool groups for other geographies have been aggregated for disclosure purposes.
44
Table of Contents
(5) Real estate-owned assets ERC includes approximately $125.0 million and $1.2 million of estimated future cash flows for Europe and Other Geographies,
respectively.
Estimated Future Collections Applied to Investment in Receivable Portfolios
As of December 31, 2023, we had $3.5 billion in investment in receivable portfolios. The estimated future collections
applied to the investment in receivable portfolios net balance is as follows (in thousands):
Years Ending December 31,
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
United States
Europe
Other
Geographies
Total
Amortization
$
500,037 $
210,329 $
5,751 $
471,245
329,180
199,461
131,091
87,623
60,094
42,559
30,389
21,838
15,792
11,760
9,276
6,896
3,539
186,915
163,512
141,095
117,542
100,482
85,813
74,397
67,320
62,509
59,446
58,370
59,659
62,402
69,597
4,783
3,959
3,431
2,974
2,650
2,356
2,090
270
—
—
—
—
—
—
716,117
662,943
496,651
343,987
251,607
190,755
148,263
119,046
97,979
84,347
75,238
70,130
68,935
69,298
73,136
Total
$
1,920,780 $
1,519,388 $
28,264 $
3,468,432
Headcount by Function by Geographic Location
The following table summarizes our headcount by function and by geographic location:
United States:
General & Administrative
Account Manager
Subtotal
Europe:
General & Administrative
Account Manager
Subtotal
Other Geographies(1):
General & Administrative
Account Manager
Subtotal
Total
________________________
Headcount as of December 31,
2023
2022
2021
999
407
1,406
955
1,883
2,838
1,252
1,879
3,131
7,375
929
306
1,235
1,030
2,062
3,092
1,150
1,456
2,606
6,933
1,049
310
1,359
1,023
1,990
3,013
1,128
1,104
2,232
6,604
(1) Headcount for other geographies includes employees in India and Costa Rica that service accounts originated in the United States.
45
Table of Contents
Liquidity and Capital Resources
Liquidity
The following table summarizes our cash flow activities for the periods presented (in thousands):
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash provided by (used in) financing activities
Operating Cash Flows
Year Ended December 31,
2023
2022
2021
$
152,991 $
(401,941)
268,300
210,681 $
(130,235)
(107,445)
303,053
339,896
(655,692)
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 $153.0 million, $210.7 million, and $303.1 million during the years ended
December 31, 2023, 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, goodwill impairment, impairment of intangible
assets, stock-based compensation charges, deferred income tax, 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. During the year ended December 31, 2023, we recorded a goodwill impairment of $238.2 million and an
impairment of intangible assets of $18.7 million. Changes in recoveries increased the operating cash flows by $82.5 million
during the year ended December 31, 2023 and decreased the operating cash flows by $93.1 million and $199.1 million during
the years ended December 31, 2022 and 2021, respectively. Refer to “Note 4: Investment in Receivable Portfolios, Net” in the
notes to our consolidated financial statements for discussion relating to changes in recoveries.
Investing Cash Flows
Net cash used in investing activities was $401.9 million, and $130.2 million during the years ended December 31, 2023,
and 2022, respectively. Net cash provided by investing activities was $339.9 million during the year ended December 31 2021.
Cash provided by or used in investing activities is primarily affected by receivable portfolio purchases offset by collection
proceeds applied to the principal of our receivable portfolios. Receivable portfolio purchases were $1,060.2 million, $790.6
million, and $657.3 million during the years ended December 31, 2023, 2022, and 2021, respectively. Collection proceeds
applied to the principal of our receivable portfolios were $658.1 million, $709.2 million, and $1,019.6 million during the years
ended December 31, 2023, 2022, and 2021, respectively. Refer to Purchases and Collections within “Item 7: Management’s
Discussion and Analysis of Financial Condition and Results of Operations” for discussion relating to purchases and collections.
Financing Cash Flows
Net cash provided by financing activities was $268.3 million during the year ended December 31, 2023. Net cash used in
financing activities was $107.4 million, and $655.7 million during the years ended December 31, 2022, and 2021, respectively.
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. Borrowings under our
credit facilities were $1,196.0 million, $779.5 million and $821.9 million during the years ended December 31, 2023, 2022, and
2021, respectively. Repayments of amounts outstanding under our credit facilities were $989.6 million, $515.7 million and
$896.4 million during the years ended December 31, 2023, 2022, and 2021, respectively. Proceeds from the issuance of senior
secured notes were $104.2 million and $353.7 million during the years ended December 31, 2023 and 2021, respectively.
Repayments of senior secured notes were $39.1 million, $39.1 million and $359.2 million during the years ended December 31,
2023, 2022, and 2021, respectively. During the year ended December 31, 2023, we issued $230.0 million 4.00% convertible
senior notes that mature in 2029, and used $212.5 million in cash to repurchase and settle our exchangeable senior notes due
2023. We repaid $221.2 million, and $161.0 million of convertible senior notes using cash on hand during the years ended
December 31, 2022, and 2021, respectively.
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Capital Resources
Our primary sources of capital are 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
any potential acquisitions. From time to time, we may repurchase outstanding debt or equity and/or restructure or refinance debt
obligations. Our primary cash requirements include funding the purchase of receivable portfolios, operating expenses, the
payment of interest and principal on borrowings, the payment of income taxes, funding any entity acquisitions and share
repurchases.
We are in material compliance with all covenants under our financing arrangements. See “Note 6: Borrowings” in the
notes to our consolidated financial statements for a further discussion of our debt. Available capacity under our Global Senior
Facility was $363.8 million as of December 31, 2023.
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 year ended December 31, 2022, we
repurchased 1,497,184 shares of our common stock for approximately $86.9 million under the share repurchase program. We
did not make any repurchases under the share repurchase program during the year ended December 31, 2023. As of
December 31, 2023, we had remaining authority to purchase $91.9 million of our common stock. Our practice is to retire the
shares repurchased.
Our cash and cash equivalents as of December 31, 2023, consisted of $32.6 million held by U.S.-based entities and $125.8
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 in the 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 $16.0 million and $17.8 million as of December 31, 2023 and 2022, respectively.
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, 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.
Future Contractual Cash Obligations
The following table summarizes our future contractual cash obligations as of December 31, 2023 (in thousands):
Contractual Obligations
Principal payments on debt
Estimated interest payments(1)
Finance leases
Operating leases
Purchase commitments on receivable
portfolios
Payment Due By Period
Total
Less
Than
1 Year
1 – 3 Years
3 – 5 Years
More
Than
5 Years
$ 3,355,729 $
39,426 $ 1,054,381 $ 2,030,651 $
231,271
736,153
2,922
95,466
198,539
2,013
17,941
372,479
867
33,183
160,535
42
24,925
4,600
—
19,417
384,576
346,426
38,150
—
—
Total contractual cash obligations(2)
$ 4,574,846 $
604,345 $ 1,499,060 $ 2,216,153 $
255,288
________________________
(1) Estimated interest payments are calculated based on outstanding principal amounts, applicable fixed interest rates or currently effective interest rates as
of December 31, 2023 for variable rate debt, timing of scheduled payments and the term of the debt obligations.
(2) We had approximately $8.2 million of liabilities and accrued interests related to uncertain tax positions as of December 31, 2023. We are unable to
reasonably estimate the timing of the cash settlement with the tax authorities due to uncertainties related to these tax matters and, as a result, these
obligations are not included in the table. See “Note 11: Income Taxes” in the notes to our consolidated financial statements for additional information
on our uncertain tax positions.
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Critical Accounting Estimates
We prepare our financial statements, in conformity with GAAP, which requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. “Note 1:
Ownership, Description of Business, and Summary of Significant Accounting Policies” of the notes to the consolidated
financial statements describes the significant accounting policies and methods used in the preparation of our consolidated
financial statements.
We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances,
and we evaluate these estimates on an ongoing basis. Actual results may differ from these estimates and such differences may
be material. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further
below. We have reviewed our critical accounting policies and estimates with the audit committee of our board of directors.
Investment in Receivable Portfolios and Related Revenue
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.
Our static pools are typically grouped into credit card, purchased consumer bankruptcy, and mortgage portfolios. We further
group 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. We make significant assumptions in
determining the economic life of a pool, including the reasonable and supportable economic forecast period based on asset type
and geography, which considers the availability of forward-looking scenarios and their respective time horizons. In general, we
forecast recoveries over one or two years prior to reverting to historical averages at an estimate-level over the remaining life
using various methodologies depending on the asset type and geography. The speed at which forecasts revert varies based on
the spread between the forecast period and historical data. In addition, estimated recoveries include a qualitative component,
which generally reflects management’s assessment of macroeconomic environment. We continue to evaluate the reasonable
economic life of a pool and reversion method on an ongoing basis. Revenue primarily includes two components: (1) accretion
of the discount on the negative allowance due to the passage of time, and (2) changes in expected cash flows, 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).
We measure expected future recoveries based on historical experience, current conditions, and reasonable and supportable
forecasts. 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 our collection staff. External factors that may
have an impact on our collections include macroeconomic conditions, new laws or regulations, and new interpretations of
existing laws or regulations. See “Note 4: Investment in Receivable Portfolios, Net” to our consolidated financial statements for
further discussion of investment in receivable portfolios.
Valuation of Goodwill and Other Intangible Assets
Business combinations typically result in the recording of goodwill and other intangible assets. The excess of the purchase
price over the fair value assigned to the tangible and identifiable intangible assets, liabilities assumed, and noncontrolling
interest in the acquiree is recorded as goodwill.
Goodwill is tested annually for impairment and in interim periods if events or changes in circumstances indicate that the
assets may be impaired. We perform our annual goodwill impairment assessment at the reporting unit level as of the first day of
the fourth quarter, and any impairment charges resulting from this process are reported in the fourth quarter.
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We first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test.
The qualitative factors include economic environment, business climate, market capitalization, operating performance,
competition, and other factors. If, after completing such assessment, we determine it is more likely than not that the fair value of
a reporting unit is greater than its carrying amount, then there is no need to perform any further testing. If we conclude
otherwise, or if we proceed directly to perform a quantitative assessment, then we calculate the fair value of the reporting unit
and compare the fair value with the carrying value of the reporting unit.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions,
estimates, and market factors. While we believe we have made reasonable estimates and assumptions to estimate the fair value
of our reporting units, if: actual results are not consistent with our current estimates and assumptions; management significantly
changes its estimates and assumptions; there is a deterioration in market factors outside of our control, such as general
economic conditions in the countries in which we operate, discount rates, income tax rates, foreign currency exchange rates, or
inflation; or there is a sustained decline in our stock price and market capitalization, goodwill impairment charges may be
recorded in future periods. The goodwill impairment charges have no effect on liquidity or capital resources. However, they are
a non-cash charge and could adversely affect our financial results in the period recognized.
The determination of the recorded value of intangible assets acquired in a business combination requires management to
make estimates and assumptions that affect our consolidated financial statements. Valuation techniques consistent with the
market approach, income approach and/or cost approach are used to measure fair value. An estimate of fair value can be
affected by many assumptions that require significant judgment. We amortize identifiable intangible assets with finite lives over
their useful lives. Changes in strategy and/or market condition may result in adjustments to recorded intangible asset balances
or their useful lives.
As described further in “Note 15: Goodwill and Identifiable Intangible Assets” to our consolidated financial statements,
we performed quantitative goodwill impairment tests for both the MCM and the Cabot reporting units during our annual
goodwill impairment in the fourth quarter of 2023 and recorded a goodwill impairment charge of $238.2 million at our Cabot
reporting unit. We also recorded an impairment charge of $18.7 million relating to our intangible assets during the fourth
quarter of 2023. The carrying value of our Cabot reporting unit was equal to its fair value immediately after the goodwill
impairment was recorded. We continue to evaluate and monitor all key factors impacting the goodwill carried at the Cabot
reporting unit. Adverse changes in our actual or expected operating results, our market capitalization, business climate,
economic factors or other negative events could result in further goodwill impairment at our Cabot reporting unit. The goodwill
balance relating to the MCM and the Cabot reporting units was $148.9 million and $457.5 million, respectively, as of
December 31, 2023.
Income Taxes
We are subject to income taxes in multiple tax jurisdictions worldwide. We record income taxes under the asset and
liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to
temporary differences between the carrying amounts of existing assets and liabilities and their respective tax bases, and
attributable to operating loss and tax credit carryforwards.
Accounting standards regarding income taxes require a reduction of the carrying amounts of deferred tax assets by a
valuation allowance, if based on the available evidence, it is more likely than not such assets will not be realized. Accordingly,
the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a more likely
than not criteria. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative
losses, forecasts of future profitability, the duration of statutory carryforward periods, tax credit carryforwards and tax planning
strategies.
We recorded valuation allowances on the net deferred tax assets of certain foreign jurisdictions of $55.0 million and $66.6
million as of December 31, 2023 and 2022, respectively. Management will reassess the realization of deferred tax assets each
reporting period and consider all available evidence including the scheduled reversal of deferred tax liabilities, sources of
taxable income and tax planning strategies. To the extent the financial results of these operations improve and it becomes more
likely than not the deferred tax assets are realizable, we will reduce the valuation allowance in the period such determination is
made, as appropriate.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements and the impact of those pronouncements, if any, on our
consolidated financial statements is provided in this Annual Report in “Note 1: Ownership, Description of Business, and
Summary of Significant Accounting Policies” to our consolidated financial statements.
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Item 7A—Quantitative and Qualitative Disclosures About Market Risk
We are exposed to economic risks from foreign currency exchange rates and interest rates. A portion of these risks is
hedged, but the risks may affect our financial statements.
Foreign Currency Exchange Rates
We have operations in foreign countries, which expose us to foreign currency exchange rate fluctuations due to
transactions denominated in foreign currencies. Our primary foreign currency exposures relate to the British Pound, Euro, and
Indian Rupee. We continuously evaluate and manage our foreign currency risk through the use of derivative financial
instruments, including foreign currency forward contracts with financial counterparties where practicable. Such derivative
instruments are viewed as risk management tools and are not used for speculative or trading purposes.
Cross-currency swap agreements are used to effectively convert fixed-rate Euro-denominated borrowings and fixed-rate
GBP-denominated borrowings, including the principal amount of the underlying debt and periodic interest payments, to fixed-
rate U.S. dollar denominated debt and are accounted for as fair value hedges.
In association with fixed-rate Euro-denominated borrowings, we have three cross-currency swap agreements with a total
notional amount of €350.0 million (approximately $386.3 million based on an exchange rate of $1.00 to €0.91, the exchange
rate as of December 31, 2023) that effectively convert interest and principal payments on €350.0 million of our Euro-
denominated debt from Euro to U.S. dollar. The cross-currency derivative instruments have maturities of October 2025. As of
December 31, 2023, the cross-currency swap agreements had a fair value liability position of $28.0 million. These swaps
eliminate the foreign currency risk associated with the hedged portion of our Euro-denominated borrowings. If the U.S. dollar
were to weaken or strengthen against the Euro by 5%, the result would have a favorable or unfavorable effect on the cross-
currency swap agreements’ fair value of $20.9 million and $19.7 million, respectively. In association with fixed-rate GBP-
denominated borrowings, we have three cross-currency swap agreements with a total notional amount of £300.0 million
(approximately $381.9 million based on an exchange rate of $1.00 to £0.79, the exchange rate as of December 31, 2023) that
effectively convert interest and principal payments on £300.0 million of our GBP-denominated debt from GBP to U.S. dollar.
The cross-currency derivative instruments have maturities of February 2026. As of December 31, 2023, the cross-currency
swap agreements had a fair value asset position of $0.4 million. These swaps eliminate the foreign currency risk associated with
the hedged portion of our GBP-denominated borrowings. If the U.S. dollar were to weaken or strengthen against the GBP by
5%, the result would have a favorable or unfavorable effect on the cross-currency swap agreements’ fair value of $20.2 million
and $19.9 million, respectively.
Interest Rates
We have variable interest-bearing borrowings under our credit facilities that subject us to interest rate risk. We have, from
time to time, utilized derivative financial instruments, including interest rate swap contracts and interest rate cap contracts with
financial counterparties to manage our interest rate risk. As of December 31, 2023, we held five interest rate swap contracts
with a total current notional amount of $260.4 million and a total notional amount of $718.5 million. As of December 31, 2023,
we held four interest rate cap contracts with a total current notional amount $759.8 million and a total notional amount of
approximately $1,084.4 million used to manage risk related to interest rate fluctuations. Both the interest rate swap and the
interest rate cap instruments are designated as cash flow hedges and are accounted for using hedge accounting. Refer to “Note
3: Derivatives and Hedging Instruments” for further details.
Our variable interest-bearing debt that is not hedged by derivative financial instruments is subject to the risk of interest
rate fluctuations. Significant increases in future interest rates on our variable rate debt could lead to a material decrease in future
earnings assuming all other factors remain constant. The rates used in our variable interest-bearing debt are based on Term
SOFR, EURIBOR, or other index rates, which in certain cases are subject to a floor. A hypothetical 50 basis points increase or
decrease in interest rates as of December 31, 2023 related to variable rate debt agreements not hedged by derivatives would
have a $3.7 million positive or negative impact on income before income taxes.
As of December 31, 2023, our outstanding interest rate swap agreements had a fair value liability position of
$22.5 million. If the market interest rates increased 50 basis points, the result would have a favorable effect to the interest rate
swap’s fair value of $11.7 million. Conversely, if the market interest rates decreased 50 basis points, the result would have an
unfavorable effect to the interest rate swap’s fair value of $12.0 million. As of December 31, 2023, our outstanding interest rate
cap contracts had a fair value asset position of $17.0 million. If the market interest rates increased 50 basis points, the result
would have a favorable effect on the interest rate cap’s fair value of $3.0 million. Conversely, if the market interest rates
decreased 50 basis points, the result would have an unfavorable effect on the interest rate cap’s fair value of $2.8 million.
Our analysis and methods used to assess and mitigate the risks discussed above should not be considered projections of
future risks.
50
Item 8—Financial Statements and Supplementary Data
Our consolidated financial statements, the notes thereto and the Report of BDO USA, P.C., our Independent Registered
Public Accounting Firm, are included in this Annual Report on Form 10-K on pages F-1 through F-36.
Item 9—Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A—Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e)
and 15d-15(e). Based upon that evaluation, our CEO and CFO concluded that, as of December 31, 2023, our disclosure controls
and procedures were effective, at the reasonable assurance level, as of such date.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting.
Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities and
Exchange Act of 1934 as a process designed by, or under the supervision of, our executive management and effected by our
board of directors, to provide reasonable assurance regarding the reliability of financial reporting and the preparations of
financial statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the
supervision of and with the participation of our management, we assessed the effectiveness of our internal control over financial
reporting as of December 31, 2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control—Integrated Framework.
BDO USA, P.C., the independent registered public accounting firm that audited the consolidated financial statements
included in this Annual Report on Form 10-K, was engaged to attest to and report on the effectiveness of Encore’s internal
control over financial reporting as of December 31, 2023, as stated in its report below.
Table of Contents
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Encore Capital Group, Inc.
San Diego, California
Opinion on Internal Control over Financial Reporting
We have audited Encore Capital Group, Inc.’s (the “Company’s”) internal control over financial reporting as of December
31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated statements of financial condition of the Company as of December 31, 2023 and 2022, the
related consolidated statements of operations and comprehensive (loss) income, equity, and cash flows for each of the three
years in the period ended December 31, 2023, and the related notes and our report dated February 21, 2024 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A,
Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, P.C.
San Diego, California
February 21, 2024
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Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of
the Exchange Act) that occurred during the quarter ended December 31, 2023 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
On November 14, 2023, Ryan Bell, President of MCM, adopted a trading plan intended to satisfy the affirmative defense
of Rule 10b5-1(c) to sell up to 7,500 shares of Encore Capital Group, Inc. common stock between February 26, 2024, and
February 28, 2025, subject to certain conditions.
Item 9B—Other Information
Item 9C—Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
None.
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PART III
Item 10—Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to our Proxy Statement for our 2024 Annual Meeting
of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023.
The information required by this item is incorporated by reference to our Proxy Statement for our 2024 Annual Meeting
of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023.
Item 11—Executive Compensation
Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to our Proxy Statement for our 2024 Annual Meeting
of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023.
Item 13—Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to our Proxy Statement for our 2024 Annual Meeting
of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023.
The information required by this item is incorporated by reference to our Proxy Statement for our 2024 Annual Meeting
of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023.
Item 14—Principal Accountant Fees and Services
54
Page
F-1
F-4
F-5
F-6
F-7
F-8
Filed or
Furnished
Herewith
Table of Contents
(a) Financial Statements.
PART IV
Item 15—Exhibits and Financial Statement Schedules
The following consolidated financial statements of Encore Capital Group, Inc. are filed as part of this annual report on
Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition at December 31, 2023 and 2022
Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2023,
2022 and 2021
Consolidated Statements of Equity for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
(b) Exhibits.
Exhibit
Number
3.1.1
3.1.2
3.1.3
3.2
4.1
4.13
4.13.1
4.14
4.15
Exhibit Description
Restated Certificate of Incorporation
Certificate of Amendment to the Certificate of
Incorporation
Second Certificate of Amendment to the
Certificate of Incorporation
Amended and Restated Bylaws, as amended
through December 13, 2022
Form of Common Stock Certificate
Indenture (including form of note), dated
September 9, 2019, by and among Encore
Capital Group, Inc., Midland Credit
Management, Inc., as guarantor, and MUFG
Union Bank, N.A., as trustee for 2025
Convertible Notes
First Supplemental Indenture, dated October
29, 2020, to the Indenture, dated as of
September 9, 2019, by and among Encore
Capital Group, Inc., Midland Credit
Management, Inc., as guarantor, and MUFG
Union Bank, N.A., as trustee
Description of Registrant’s Securities
Registered Pursuant to Section 12 of the
Securities Exchange Act of 1934
Indenture dated September 24, 2020 between
Encore Capital Group, Inc., the subsidiary
guarantors party thereto, Citibank, N.A.,
London Branch as trustee and Truist Bank as
security agent for Encore 2025 Notes
Incorporated By Reference
Form
S-1/A
File
Number
333-77483
8-K
000-26489
Exhibit
3.1
3.1
Filing Date
6/14/1999
4/4/2002
10-Q
000-26489
3.1.3
8/7/2019
8-K
000-26489
3.1
12/16/2022
S-3
333-163876
4.7
12/21/2009
8-K
000-26489
4.1
9/10/2019
10-Q
000-26489
4.7
11/2/2020
X
8-K
000-26489
4.1
9/24/2020
55
Table of Contents
Exhibit
Number
4.15.1
4.16
4.16.1
4.17
4.17.1
4.18
4.18.1
4.19
10.1+
10.5+
10.7+
10.8+
10.8.1+
Exhibit Description
First Supplemental Indenture, dated November
14, 2022, to the Indenture, dated September 24,
2020, by and between Encore Capital Group,
Inc., the subsidiary guarantors party thereto,
Citibank, N.A., London Branch as trustee and
Truist Bank as security agent for Encore 2025
Notes
Indenture dated November 23, 2020 between
Encore Capital Group, Inc., the subsidiary
guarantors party thereto, Citibank, N.A.,
London Branch as trustee and Truist Bank as
security agent for Encore 2026 Notes
First Supplemental Indenture, dated November
14, 2022, to the Indenture, dated November 23,
2020, by and between Encore Capital Group,
Inc., the subsidiary guarantors party thereto,
Citibank, N.A., London Branch as trustee and
Truist Bank as security agent for Encore 2026
Notes
Indenture dated December 21, 2020 between
Encore Capital Group, Inc., the subsidiary
guarantors party thereto, Citibank, N.A.,
London Branch as trustee and Truist Bank as
security agent for Encore 2028 Floating Rate
Notes
First Supplemental Indenture, dated November
14, 2022, to the Indenture, dated December 21,
2020, by and between Encore Capital Group,
Inc., the subsidiary guarantors party thereto,
Citibank, N.A., London Branch as trustee and
Truist Bank as security agent for Encore 2028
Floating Rate Notes
Indenture dated June 1, 2021 between Encore
Capital Group, Inc., the subsidiary guarantors
party thereto, GLAS Trust Company LLC as
trustee and Truist Bank as security agent for
Encore 2028 Notes
First Supplemental Indenture, dated November
14, 2022, to the Indenture, dated June 1, 2021,
by and between Encore Capital Group, Inc., the
subsidiary guarantors party thereto, GLAS
Trust Company LLC as trustee and Truist
Bank as security agent for Encore 2028 Notes
Indenture (including form of note), dated
March 3, 2023, by and among Encore Capital
Group, Inc. and Truist Bank, as trustee, for
2029 Convertible Notes
Form of Indemnification Agreement
Encore Capital Group, Inc. Executive
Separation Plan
Non-Employee Director Compensation
Program Guidelines, effective June 10, 2022
Non-Employee Director Deferred Stock
Compensation Plan
First Amendment to Non-Employee Director
Deferred Stock Compensation Plan, dated
August 11, 2016
Incorporated By Reference
Form
File
Number
Exhibit
Filing Date
Filed or
Furnished
Herewith
10-K
000-26489
4.15.1
2/22/2023
8-K
000-26489
4.1
11/23/2020
10-K
000-26489
4.16.1
2/22/2023
8-K
000-26489
4.1
12/21/2020
10-K
000-26489
4.17.1
2/22/2023
8-K
000-26489
4.1
6/1/2021
10-K
000-26489
4.18.1
2/22/2023
8-K
000-26489
4.1
3/3/2023
8-K
000-26489
10-K
000-26489
10.1
10.5
5/4/2006
2/23/2022
10-Q
000-26489
10.1
8/3/2022
10-Q
000-26489
10.2
8/4/2016
10-Q
000-26489
10.1
11/9/2016
56
Table of Contents
Exhibit
Number
10.11+
10.11.1+
10.11.2+
10.11.3+
10.11.4+
10.11.5+
10.11.6+
10.11.7+
10.11.8+
10.11.10
+
10.19
10.27
21
23
31.1
31.2
Exhibit Description
The Encore Capital Group, Inc. 2017 Incentive
Award Plan
Form of Restricted Stock Unit Grant Notice
and Award Agreement under the Encore
Capital Group, Inc. 2017 Incentive Award Plan
Form of Restricted Stock Unit Grant Notice
and Award Agreement under the Encore
Capital Group, Inc. 2017 Incentive Award Plan
(Executive Separation Plan Participant)
Form of Restricted Stock Award Grant Notice
and Award Agreement under the Encore
Capital Group, Inc. 2017 Incentive Award Plan
Form of Stock Option Grant Notice and Award
Agreement under the Encore Capital Group,
Inc. 2017 Incentive Award Plan
Form of Performance Share Unit Award Grant
Notice and Award Agreement (EPS) under the
Encore Capital Group, Inc. 2017 Incentive
Award Plan (Executive Separation Plan
Participant)
Form of Performance Share Unit Award Grant
Notice and Award Agreement (EPS) under the
Encore Capital Group, Inc. 2017 Incentive
Award Plan
Form of Performance Share Unit Award Grant
Notice and Award Agreement (TSR) under the
Encore Capital Group, Inc. 2017 Incentive
Award Plan (Executive Separation Plan
Participant)
Form of Performance Share Unit Award Grant
Notice and Award Agreement (TSR) under the
Encore Capital Group, Inc. 2017 Incentive
Award Plan
Form of Performance Share Unit Award Grant
Notice and Award Agreement (ROIC) under
the Encore Capital Group, Inc. 2017 Incentive
Award Plan
Amended and Restated Senior Facilities
Agreement, dated September 15, 2023, by and
among Encore Capital Group, Inc., the several
guarantors, banks and other financial
institutions and lenders from time to time party
thereto and Truist Bank as Agent and Security
Agent
Form of Capped Call Confirmations for 2029
Convertible Notes
List of Subsidiaries
Consent of Independent Registered Public
Accounting Firm, BDO USA, P.C.
Certification of the Principal Executive Officer
pursuant to Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934
Certification of the Principal Financial Officer
pursuant to Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934
Incorporated By Reference
Form
File
Number
Exhibit
Filing Date
8-K
000-26489
10.3
6/20/2017
Filed or
Furnished
Herewith
8-K
000-26489
10.4
6/20/2017
8-K
000-26489
10.5
6/20/2017
8-K
000-26489
10.6
6/20/2017
8-K
000-26489
10.7
6/20/2017
8-K
000-26489
10.1
3/15/2018
8-K
000-26489
10.2
3/15/2018
8-K
000-26489
10.3
3/15/2018
8-K
000-26489
10.4
3/15/2018
10-K
000-26489
10.11.10
2/23/2023
10-Q
000-26489
10.1
11/1/2023
8-K
000-26489
10.1
3/3/2023
X
X
X
X
57
Table of Contents
Exhibit
Number
32.1
97.1
101.INS
101.SCH
Exhibit Description
Certifications of Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(furnished herewith)
Encore Policy for Recovery of Erroneously
Awarded Compensation
Inline XBRL Instance Document - the instance
document does not appear in the Interactive
Data File because its XBRL tags are embedded
within the Inline XBRL document
Inline XBRL Taxonomy Extension Schema
Document
101.CAL Inline XBRL Taxonomy Extension Calculation
Linkbase Document
Inline XBRL Taxonomy Extension Definition
Linkbase Document
101.DEF
101.LAB Inline XBRL Taxonomy Extension Label
Linkbase Document
101.PRE Inline XBRL Taxonomy Extension
Presentation Linkbase Document
Cover Page Interactive Data File (formatted as
Inline XBRL and contained in Exhibit 101)
104
Incorporated By Reference
Form
File
Number
Exhibit
Filing Date
Filed or
Furnished
Herewith
X
X
X
X
X
X
X
X
Management contract or compensatory plan or arrangement.
+
In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, copies of certain instruments defining the rights of
holders of long-term debt of the company are not filed herewith. Pursuant to this regulation, we hereby agree to
furnish a copy of any such instrument to the SEC upon request.
None.
Item 16—Form 10-K Summary
58
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENCORE CAPITAL GROUP, INC.,
a Delaware corporation
By:
/s/ ASHISH MASIH
Ashish Masih
President and Chief Executive Officer
Date: February 21, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Name and Signature
Title
Date
/s/ ASHISH MASIH
Ashish Masih
President and Chief Executive
Officer and Director
(Principal Executive Officer)
February 21, 2024
/s/ JONATHAN C. CLARK
Jonathan C. Clark
/s/ WILLIAM C. GOINGS
William C. Goings
/s/ ASHWINI GUPTA
Ashwini Gupta
/s/ WENDY G. HANNAM
Wendy G. Hannam
/s/ JEFFREY A. HILZINGER
Jeffrey A. Hilzinger
/s/ ANGELA A. KNIGHT
Angela A. Knight
/s/ MICHAEL P. MONACO
Michael P. Monaco
/s/ LAURA OLLE
Laura Olle
/s/ RICHARD P. STOVSKY
Richard P. Stovsky
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
Director
Director
Director
Director
Director
Director
Director
Director
59
Table of Contents
ENCORE CAPITAL GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (BDO USA, P.C.; San Diego, California; PCAOB
ID #243)
Consolidated Statements of Financial Condition at December 31, 2023 and 2022
Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2023, 2022
and 2021
Consolidated Statements of Equity for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies
Note 2: Fair Value Measurements
Note 3: Derivatives and Hedging Instruments
Note 4: Investment in Receivable Portfolios, Net
Note 5: Composition of Certain Financial Statement Items
Note 6: Borrowings
Note 7: Variable Interest Entities
Note 8: Common Stock
Note 9: Accumulated Other Comprehensive Loss
Note 10: Stock-Based Compensation
Note 11: Income Taxes
Note 12: Leases
Note 13: Commitments and Contingencies
Note 14: Segment and Geographic Information
Note 15: Goodwill and Identifiable Intangible Assets
Page
F-1
F-4
F-5
F-6
F-7
F-8
F-9
F-9
F-14
F-17
F-19
F-20
F-21
F-25
F-25
F-26
F-26
F-28
F-32
F-33
F-34
F-35
Table of Contents
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Encore Capital Group, Inc.
San Diego, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of Encore Capital Group, Inc. (the
“Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive (loss)
income, equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting
principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) and our report dated February 21, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Estimate of Expected Future Recoveries on Purchased Credit Deteriorated Assets
As more fully described in Notes 1 and 4 to the consolidated financial statements, the Company’s investment in receivable
portfolios, net balance was approximately $3.5 billion at December 31, 2023 and the resulting changes in recoveries for the year
ended December 31, 2023 was a decrease of $82.5 million. Investment in receivable portfolios, net is comprised of purchased
loans that have experienced significant deterioration of credit quality since origination. In accordance with the Company’s
charge-off policy, each individual loan is deemed to be uncollectible. Receivable portfolio purchases are aggregated based on
similar risk characteristics (“pool”), and a negative allowance is established based on expected future recoveries of the pool
using a discounted cash flow approach. Subsequent changes (favorable and unfavorable) in expected future recoveries are
recognized within changes in recoveries in the consolidated statements of income. The Company reviews each pool for current
trends, actual versus expected performance, and expected timing of future recoveries (curve shape). The Company then re-
forecasts the timing and amounts of expected future recoveries.
F-1
Table of Contents
We identified the estimate of expected future recoveries on purchased credit deteriorated assets as a critical audit matter.
Specifically, management is required to make significant judgments and assumptions to estimate expected future recoveries.
Estimated future recoveries are based on historical experience, current conditions, reasonable and supportable forecasts, and
other quantitative and qualitative factors. Auditing these elements involved especially challenging auditor judgment due to the
nature and extent of audit effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
•
•
•
Testing the design and operating effectiveness of controls over management’s assessment of the reasonableness of
inputs and outputs from the Company’s proprietary statistical and behavioral models used to forecast expected
future recoveries, and performance monitoring of expected future recoveries, which included the observation of
certain key governance meetings.
Testing the collection data used by management to monitor each pool for current trends, actual versus expected
performance, and the expected amount and timing of future recoveries (curve shape).
Evaluating management’s process used to develop estimates of expected future recoveries and certain qualitative
factors by: (i) testing source data; (ii) assessing external evidence, such as macroeconomic data; and (iii)
evaluating the reasonableness of assumptions by comparing to historical results, including current and past period
forecasts to actual performance, recent performance trends, and curve shape.
Goodwill Impairment Assessment
As more fully described in Notes 1 and 15 to the consolidated financial statements, the Company’s goodwill balance was
approximately $606.5 million at December 31, 2023, which was allocated between two reporting units, MCM and Cabot, that
carried goodwill.
The Company performed its annual quantitative goodwill impairment assessment for both the MCM and Cabot reporting
units as of October 1, 2023, which utilized a combination of the income and the market approaches. The Company also
evaluated the aggregate fair value of its reporting units to its aggregate market capitalization at the testing date. As a result of
this analysis, the Company determined that the fair value of the MCM reporting unit exceeded its carrying value, while the fair
value of the Cabot reporting unit was less than its carrying value, and recorded an impairment charge of $238.2 million, which
represented the difference between the assessed fair value and carrying value thereof.
We identified the goodwill impairment assessment of the MCM and Cabot reporting units as a critical audit matter
because of the significant assumptions and judgments management made as part of the assessment to estimate the fair value of
the reporting units. The income approach required significant management assumptions, such as assumptions used in the cash
flow forecasts, the discount rate, and the terminal value. The market approach required significant management judgment in the
selection of appropriate peer group companies and valuation multiples. Auditing these elements involved a high degree of
auditor judgment due to the nature and extent of audit effort, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
•
•
•
•
Evaluating management’s process for developing fair value estimates determined using the income and market
approaches including testing the relevance and reliability of underlying data, and evaluating significant
management assumptions to historical results and market participant data.
Recalculating the impairment charge to the Cabot reporting unit based on the difference between the assessed fair
value and carrying value thereof.
Testing the reconciliation of the estimated fair value of the Company’s reporting units to the indicated market
capitalization of the Company, as a whole.
Utilizing personnel with specialized knowledge and skill in valuation to assist in: (i) assessing the appropriateness
of the fair value methodology; (ii) evaluating the reasonableness of certain assumptions used including the
discount rate, selection of peer group companies, valuation multiples, and the terminal value; (iii) assessing the
reasonableness of the discount rate by developing independent estimates and comparing estimates to those utilized
by management; and (iv) evaluating the reasonableness of the market capitalization reconciliation.
F-2
Table of Contents
/s/ BDO USA, P.C.
We have served as the Company's auditor since 2001.
San Diego, California
February 21, 2024
F-3
Table of Contents
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
Assets
Cash and cash equivalents
Investment in receivable portfolios, net
Property and equipment, net
Other assets
Goodwill
Total assets
Liabilities:
Liabilities and Equity
Accounts payable and accrued liabilities
Borrowings
Other liabilities
Total liabilities
Commitments and contingencies (Note 13)
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, 23,545 shares and
23,323 shares issued and outstanding as of December 31, 2023 and
December 31, 2022, respectively
Additional paid-in capital
Accumulated earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2023
December 31,
2022
$
158,364 $
3,468,432
103,959
293,256
606,475
143,912
3,088,261
113,900
341,073
821,214
$
$
4,630,486 $
4,508,360
189,928 $
3,318,031
185,989
3,693,948
198,217
2,898,821
231,695
3,328,733
—
235
11,052
1,049,171
(123,920)
936,538
$
4,630,486 $
—
233
—
1,278,210
(98,816)
1,179,627
4,508,360
The following table presents certain assets and liabilities of consolidated variable interest entities (“VIEs”) included in the consolidated
statements of financial condition above. Most assets in the table below include those assets that can only be used to settle obligations of
consolidated VIEs. The liabilities exclude amounts where creditors or beneficial interest holders have recourse to the general credit of the
Company. See “Note 7: Variable Interest Entities” for additional information on the Company’s VIEs.
Assets
Cash and cash equivalents
Investment in receivable portfolios, net
Other assets
Accounts payable and accrued liabilities
Liabilities
Borrowings
Other liabilities
December 31,
2023
December 31,
2022
$
24,472 $
717,556
19,358
1,854
494,925
2,452
1,344
431,350
3,627
150
423,522
105
See accompanying notes to consolidated financial statements
F-4
Table of Contents
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
Revenues
Revenue from receivable portfolios
Changes in recoveries
Total debt purchasing revenue
Servicing revenue
Other revenues
Total revenues
Operating expenses
Salaries and employee benefits
Cost of legal collections
General and administrative expenses
Other operating expenses
Collection agency commissions
Depreciation and amortization
Goodwill impairment
Impairment of intangible assets
Total operating expenses
Income from operations
Other expense
Interest expense
Loss on extinguishment of debt
Other income (expense)
Total other expense
(Loss) income before income taxes
Provision for income taxes
Net (loss) income
Net income attributable to noncontrolling interest
Net (loss) income attributable to Encore Capital Group, Inc.
stockholders
(Loss) income per share attributable to Encore Capital Group,
Inc.:
Basic (loss) income per share from:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Year Ended December 31,
2023
2022
2021
$
1,204,437 $
(82,530)
1,202,361 $
93,145
1,121,907
1,295,506
83,136
17,637
94,922
7,919
1,287,730
199,136
1,486,866
120,778
6,855
1,222,680
1,398,347
1,614,499
391,532
224,252
144,862
111,179
35,657
41,737
238,200
18,726
1,206,145
16,535
375,135
217,944
145,798
111,234
35,568
46,419
—
4,075
936,173
462,174
385,178
254,280
137,695
106,938
47,057
50,079
—
—
981,227
633,272
(201,877)
(153,308)
(169,647)
—
5,078
(196,799)
(180,264)
—
2,123
(9,300)
(17,784)
(151,185)
(196,731)
310,989
(26,228)
(116,425)
(206,492)
194,564
—
—
436,541
(85,340)
351,201
(419)
$
(206,492) $
194,564 $
350,782
$
$
(8.72) $
(8.72) $
8.06 $
7.46 $
11.64
11.26
23,670
23,670
24,142
26,092
30,129
31,153
See accompanying notes to consolidated financial statements
F-5
Table of Contents
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Comprehensive (Loss) Income
(In Thousands)
Net (loss) income
Other comprehensive (loss) income, net of tax:
Change in unrealized (loss) gain on derivative instruments:
Unrealized (loss) gain on derivative instruments
Income tax effect
Unrealized (loss) gain on derivative instruments, net of
tax
Change in foreign currency translation:
Unrealized gain (loss) on foreign currency translation
Income tax effect
Removal of other comprehensive loss in connection with
divestiture
Unrealized gain (loss) on foreign currency translation,
net of divestiture
Other comprehensive (loss) income, net of tax
Comprehensive (loss) income
Comprehensive income attributable to noncontrolling interest:
Net income attributable to noncontrolling interest
Comprehensive income attributable to noncontrolling
interest
Comprehensive (loss) income attributable to Encore Capital Group,
Inc. stockholders
Year Ended December 31,
2023
2022
2021
$
(206,492) $
194,564 $
351,201
(44,478)
36,385
4,891
(407)
12,835
(2,165)
(39,587)
35,978
10,670
15,376
(893)
(78,232)
(3,014)
(15,309)
—
—
—
19,904
14,483
(25,104)
(231,596)
(81,246)
(45,268)
149,296
4,595
15,265
366,466
—
—
—
—
(419)
(419)
$
(231,596) $
149,296 $
366,047
See accompanying notes to consolidated financial statements
F-6
Table of Contents
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Equity
(In Thousands)
Common Stock Additional
Paid-In
Shares
Capital
Par
Accumulated
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Noncontrolling
Interest
Total
Equity
Balance as of December 31, 2020
31,345 $ 313 $ 230,440 $ 1,055,668 $
(68,813) $
2,468 $ 1,220,076
Cumulative adjustment
Net income
Other comprehensive loss, net of tax
—
—
(40,372)
—
—
—
—
—
—
Purchase of noncontrolling interest
—
—
(2,669)
Exercise of stock options and issuance of share-
based awards, net of shares withheld for
employee taxes
266
2
(5,537)
22,458
350,782
—
—
—
Repurchase and retirement of common stock
(7,070)
(70)
(200,192)
(190,344)
Stock-based compensation
—
—
18,330
Removal of other comprehensive loss in
connection with divestiture
Balance as of December 31, 2021
Net income
Other comprehensive loss, net of tax
Exercise of stock options and issuance of share-
based awards, net of shares withheld for
employee taxes
—
—
1,238,564
194,564
—
—
24,541
245
—
—
—
—
—
—
—
—
—
(45,268)
279
3
(3,949)
(7,434)
Repurchase and retirement of common stock
(1,497)
(15)
(10,659)
(76,332)
Stock-based compensation
—
—
15,402
Settlement of convertible senior notes
Other
Balance as of December 31, 2022
Net loss
Other comprehensive loss, net of tax
Exercise of stock options and issuance of share-
based awards, net of shares withheld for
employee taxes
Stock-based compensation
—
—
—
—
23,323
233
—
—
—
—
—
(794)
—
—
—
222
2
(5,108)
—
—
13,854
Purchase of capped call options, net of tax effect
—
—
(13,865)
Unwind of the existing capped call options
—
—
30,913
—
(71,152)
—
(206,492)
—
—
—
—
—
Settlement of convertible senior notes
—
—
(14,742)
(22,547)
—
—
(4,639)
—
—
—
—
19,904
(53,548)
—
—
—
—
—
—
—
(25,104)
—
—
—
—
—
1,278,210
(98,816)
—
(17,914)
419
351,201
—
(4,639)
(2,887)
(5,556)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5,535)
(390,606)
18,330
19,904
1,185,261
194,564
(45,268)
(11,380)
(87,006)
15,402
(71,152)
(794)
1,179,627
(206,492)
(25,104)
(5,106)
13,854
(13,865)
30,913
(37,289)
Balance as of December 31, 2023
23,545 $ 235 $ 11,052 $ 1,049,171 $
(123,920) $
— $ 936,538
See accompanying notes to consolidated financial statements
F-7
Table of Contents
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(In Thousands)
Operating activities:
Net (loss) income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Other non-cash interest expense, net
Stock-based compensation expense
Deferred income taxes
Goodwill impairment
Impairment of intangible assets
Changes in recoveries
Other, net
Changes in operating assets and liabilities
Other assets
Accounts payable, accrued liabilities and other liabilities
Net cash provided by operating activities
Investing activities:
Purchases of receivable portfolios, net of put-backs
Collections applied to investment in receivable portfolios, net
Purchases of real estate owned
Purchases of property and equipment
Proceeds from sale of real estate owned
Other, net
Net cash (used in) provided by investing activities
Financing activities:
Payment of loan and debt refinancing costs
Proceeds from credit facilities
Repayment of credit facilities
Proceeds from senior secured notes
Repayment of senior secured notes
Proceeds from issuance of convertible senior notes
Repayment of convertible senior notes
Repurchase and retirement of common stock
Other, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes, net of refunds
Supplemental schedule of non-cash investing and financing activities:
Investment in receivable portfolios transferred to real estate owned
Property and equipment acquired through finance leases
Year Ended December 31,
2023
2022
2021
$
(206,492) $
194,564 $
351,201
41,737
17,160
13,854
(55,916)
238,200
18,726
82,530
(2,259)
15,894
(10,443)
152,991
(1,060,206)
658,130
(26,901)
(24,807)
52,636
(793)
(401,941)
(13,707)
1,196,046
(989,627)
104,188
(39,080)
230,000
(212,480)
—
(7,040)
268,300
19,350
(4,898)
143,912
158,364 $
46,419
15,875
15,402
46,410
—
4,075
(93,145)
18,798
(6,722)
(30,995)
210,681
(790,569)
709,176
(39,340)
(37,224)
27,722
—
(130,235)
(1,659)
779,513
(515,703)
—
(39,080)
—
(221,153)
(87,006)
(22,357)
(107,445)
(26,999)
(18,734)
189,645
143,912 $
50,079
17,785
18,330
35,371
—
—
(199,136)
26,430
38,941
(35,948)
303,053
(657,280)
1,019,629
(17,090)
(33,372)
31,159
(3,150)
339,896
(11,963)
821,931
(896,418)
353,747
(359,175)
—
(161,000)
(390,606)
(12,208)
(655,692)
(12,743)
13,204
189,184
189,645
163,815 $
68,522
131,391 $
71,276
132,400
42,039
7,957 $
234
1,903 $
3,273
768
2,664
$
$
$
See accompanying notes to consolidated financial statements
F-8
Table of Contents
ENCORE CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements
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.”
Basis of Consolidation
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in
the United States of America (“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 7: Variable Interest Entities” for further details. All intercompany transactions and balances have been
eliminated in consolidation.
Translation of Foreign Currencies
The 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.
Reclassification
The Company made immaterial reclassifications to the prior year’s consolidated financial statements to conform to current
year presentation. The Company presented impairment of intangible assets within the depreciation and amortization expense
line item in the consolidated statements of income on its Form 10-K for the year ended December 31, 2022, and has reclassed
such impairment charge as a single line item in the Company’s consolidated statements of operations on this Form 10-K for the
year ended December 31, 2023. The Company made the same reclassification to its consolidated statements of cash flows
accordingly. The reclassifications have no effect on net income, total assets, or accumulated earnings as previously reported.
Recently Adopted Accounting Pronouncements
There were no recently adopted accounting pronouncements.
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Table of Contents
Recent Accounting Standards or Updates Not Yet Effective
In August 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”)
2023-05, Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, which
addresses the accounting by a joint venture for contributions received upon its formation (“ASU 2023-05”). ASU 2023-05
requires joint ventures to measure all assets and liabilities upon formation at fair value. This guidance will be applied
prospectively to all joint venture formations with a formation date on or after January 1, 2025. This amendment would only
impact the Company upon adoption if, in the future, it entered into an applicable transaction.
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to
the SEC’s Disclosure Update and Simplification Initiative, to amend certain disclosure and presentation requirements for a
variety of topics within the Accounting Standards Codification (“ASC”). These amendments align the requirements in the ASC
to the removal of certain disclosure requirements set out in Regulation S-X and Regulation S-K, announced by the SEC. The
effective date for each amended topic in the ASC is either the date on which the SEC’s removal of the related disclosure
requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the
requirements by that date. Early adoption is prohibited. The Company is currently evaluating the potential impact, but we do
not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related
disclosures.
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 will likely result in additional required
disclosure 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. The Company is currently evaluating the
impact of this standard on its consolidated financial statements and related disclosures.
Use of Estimates
The preparation of financial statements, in conformity with GAAP, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing
basis, the Company evaluates significant estimates, including estimated future recoveries on its investment in receivable
portfolios, fair value of goodwill, and income taxes, among others. The Company bases its estimates on assumptions, both
historical and forward looking, that are believed to be reasonable. Actual results could materially differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with maturities of three months or less at the date of
purchase. The Company maintains its cash and cash equivalents in multiple financial institutions and certain account balances
exceed federally insurable limits. To date, the Company has experienced no loss or lack of access to cash in its bank accounts.
The Company believes any risks are mitigated by maintaining cash with highly rated financial institutions. The carrying
amounts reported in the consolidated statements of financial condition for cash and cash equivalents approximate their fair
value.
Included in cash and cash equivalents is cash collected on behalf of and due to third-party clients. A corresponding
balance is included in accounts payable and accrued liabilities. The balance of cash held for clients was $16.0 million and $17.8
million as of December 31, 2023 and 2022, respectively.
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Table of Contents
Investment in Receivable Portfolios
The Company purchases portfolios of loans that have experienced significant deterioration of credit quality since
origination from banks and other financial institutions. These financial assets are defined as purchased credit deteriorated (or
“PCD”) assets under the accounting standard for Financial Instruments - Credit Losses (“CECL”). Under the PCD accounting
model, the purchased assets are recognized at 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 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. The amount of the negative allowance (i.e.,
investment in receivable portfolios) will not exceed the total amortized cost basis of the loans written-off.
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 that may have an impact on the Company’s collections include
new laws or regulations, new interpretations of existing laws or regulations, and macroeconomic conditions.
The Company elected not to maintain its previously formed pool groups with amortized costs at transition. Certain pools
already fully recovered their cost basis and became ZBA prior to the transition. The Company did not establish a negative
allowance from ZBA pools as the Company elected the Transition Resource Group for Credit Losses’ practical expedient to
retain the integrity of its legacy pools. All subsequent collections to the ZBA pools are recognized as ZBA revenue, which is
included in revenue from receivable portfolios in the Company’s consolidated statements of operations.
Transfers of Financial Assets
The Company accounts for transfers of financial assets as sales when it has surrendered control over the related assets.
Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an
assessment of the nature and extent of the Company’s ongoing involvement with the assets transferred. Gains and losses
stemming from transfers reported as sales are included in “Other revenues” in the Company’s consolidated statements of
operations. Assets obtained and liabilities incurred in connection with transfers reported as sales are initially recognized in the
statements of financial condition at fair value.
F-11
Table of Contents
Transfers of financial assets that do not qualify for sale accounting are reported as collateralized borrowings. Accordingly,
the related assets remain on the Company’s statements of financial condition and continue to be reported and accounted for as if
the transfer had not occurred. Cash proceeds from these transfers are reported as liabilities, with attributable interest expense
recognized over the life of the related transactions. To date, the Company has not had any transfers of financial assets that did
not qualify for sale accounting.
Servicing Revenue
Certain of the Company’s subsidiaries earn servicing revenue by providing portfolio management services to credit
originators for non-performing loans. The Company recognizes servicing revenue when it satisfies the performance obligation
over time by providing debt solution and credit management services. The Company typically invoices for its services monthly
with payment terms of 30 days.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over the value assigned to tangible and identifiable intangible assets,
liabilities assumed, and noncontrolling interest of businesses acquired. Acquired intangible assets other than goodwill are
amortized over their useful lives unless the lives are determined to be indefinite. Goodwill is tested at the reporting unit level
annually for impairment and in interim periods if certain events occur indicating the fair value of a reporting unit may be below
its carrying value. See “Note 15: Goodwill and Identifiable Intangible Assets” for further discussion of the Company’s goodwill
and other intangible assets.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation and amortization. The provision for
depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets as
follows:
Fixed Asset Category
Leasehold improvements
Furniture, fixtures and equipment
Computer hardware and software
Estimated Useful Life
Lesser of lease term, including periods covered
by renewal options, or useful life
5 to 10 years
3 to 5 years
Maintenance and repairs are charged to expense in the year incurred. Expenditures for major renewals that extend the
useful lives of fixed assets are capitalized and depreciated over the useful lives of such assets.
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The Company measures recoverability by comparing the carrying
amount to the future undiscounted cash flows that the asset is expected to generate. If the asset is not recoverable, its carrying
amount would be adjusted down to its fair value.
Real Estate Owned
Real estate-owned assets, or REO assets, represent real estate assets acquired when (1) the Company takes possession of
the underlying real estate assets of non-performing secured mortgage portfolio previously purchased or (2) when the Company
purchases real estate assets. Upon repossession or foreclosure, the Company initially records the property received at its fair
value less costs to sell. Subsequent to acquisition, REO is carried at the lower of cost or fair value, less estimated selling costs.
Management performs valuations at each reporting period end using Level 3 measurements based on appraised values using
market comparables and a valuation allowance is established by a charge to income for any excess of the carrying value over
the fair value, less estimated costs to sell the property. The REOs are generally acquired at deeply discounted values and
therefore the valuation allowances associated with these assets are immaterial. Recoveries in fair value during the holding
period are recognized until the valuation allowance is reduced to zero. Proceeds received in excess of the carrying value of the
REO and any associated direct selling costs are recorded as other revenues within the Company’s consolidated statements of
operations. Costs related to holding and maintaining the property are charged to operating expenses.
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Table of Contents
Leases
The Company recognizes operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated
statements of financial condition. ROU assets represent the Company’s right to use an underlying asset during the lease term
and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and lease
liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term. The
Company’s lease term includes options to extend or terminate the lease when it is reasonably certain that it will exercise that
option. ROU assets also include any advance lease payments made and are net of any lease incentives. As most of the
Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the
information available at commencement date in determining the present value of lease payments. The incremental borrowing
rate is the rate of interest that the Company would expect to pay to borrow over a similar term, and on a collateralized basis, an
amount equal to the lease payments in a similar economic environment.
The Company elected not to apply the recognition requirements to short-term leases and not to separate non-lease
components from lease components for operating leases.
Income Taxes
The provision for income taxes is estimated using the asset and liability method of accounting for income taxes, under
which deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and
income tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the
years in which the differences are expected to be realized or settled. At each reporting date, the Company considers new
evidence, both positive and negative, that could affect future realization of deferred tax assets including historical earnings,
taxable income in prior carryback years if permitted under tax law, projections of future income, timing of reversing temporary
differences and the implementation of feasible and prudent tax planning strategies. In the event that it is more likely than not
that all or part of the deferred tax assets are determined not to be realizable in the future, the Company would establish or
increase a valuation allowance in the period such determination is made, with a corresponding charge to earnings. In the event
the Company realizes deferred tax assets that were previously determined to be unrealizable, the Company would release or
decrease the respective valuation allowance, with a corresponding positive adjustment to earnings. The calculation of tax
liabilities involves significant judgement in estimating the impact and timing of resolution of uncertainties in the application of
complex tax laws. Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a
material impact on the Company’s results of operation and financial position. The Company records liabilities related to
uncertain tax positions when it believes that it is more likely than not that those positions may not be fully sustained upon
review by tax authorities, despite its belief that those tax return positions are supportable. The Company includes interest and
penalties related to income taxes within its provision for income taxes. See “Note 11: Income Taxes” for further discussion.
Stock-Based Compensation
The Company determines stock-based compensation expense for all share-based payment awards based on the
measurement date fair value. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock
option grants. The Company has certain share awards that include market conditions that affect vesting, the fair value of these
shares is estimated using a lattice model. Compensation cost is not adjusted if the market condition is not met, as long as the
requisite service is provided. For share awards that require service and performance conditions, the Company recognizes
compensation cost only for those awards expected to meet the service and performance vesting conditions over the requisite
service period of the award. Forfeiture rates are estimated based on the Company’s historical experience. Stock-based
compensation expenses are included in “Salaries and Employee Benefits” in the Company’s consolidated statements of
operations. See “Note 10: Stock-Based Compensation” for further discussion.
Derivative Instruments and Hedging Activities
The Company recognizes all derivative financial instruments in its consolidated financial statements at fair value.
Changes in the fair value of derivative instruments are recorded in earnings unless hedge accounting criteria are met. The
Company designates derivative instruments as cash flow hedges or fair value hedges based on the intended use of the
derivative. The changes in fair value of derivatives designated as fair value hedges is recorded each period in other income
(expense) with the offsetting changes in fair value of the hedged item attributed to the risk being hedged. Changes in the fair
value of derivatives that are not highly effective in hedging the changes in fair value of the hedged item are recognized
immediately in current earnings. The changes in fair value of derivatives designated as cash flow hedges is recorded each
period, net of tax, in accumulated other comprehensive income or loss until the related hedged transaction occurs. If in the event
the hedged cash flow does not occur, or it becomes probable that it will not occur, the Company would reclassify the amount of
any gain or loss on the related cash flow hedge to income or expense at that time. If the hedged cash flows are still reasonably
possible to occur, the hedged cash flows will continue to be recorded in accumulated other comprehensive income or loss until
the hedged cash flows are no longer probable of occurring. The Company classifies the cash flows from a derivative instrument
F-13
Table of Contents
that is accounted for as a cash flow hedge (and that does not contain an other-than-insignificant financing element at inception)
in the same category as the cash flows from the items being hedged. See “Note 3: Derivatives and Hedging Instruments” for
further discussion.
Concentration of Supply Risk
A significant percentage of the Company’s portfolio purchases for any given fiscal quarter or year may be concentrated
with a few large sellers, some of which may also involve forward flow arrangements. A significant decrease in the volume of
portfolio available from any of the Company’s principal sellers would force the Company to seek alternative sources of
charged-off receivables.
The Company may be unable to find alternative sources from which to purchase charged-off receivables, and even if it
could successfully replace these purchases, the search could take time and the receivables could be of lower quality, cost more,
or both, any of which could adversely affect the Company’s business, financial condition and operating results.
Income or Loss Per Share
Basic income or loss per share is calculated by dividing net income or loss attributable to Encore 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 potentially 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.
The Company adopted ASU 2020-06 on January 1, 2021, using a modified retrospective approach. Effective January 1,
2021, the dilutive effect of the Company’s convertible and exchangeable notes is calculated using the if-converted method.
Prior to the adoption, the dilutive effect of the convertible and exchangeable notes was calculated using the treasury stock
method. In September 2021, in accordance with the indenture for the convertible senior notes due in March 2022, the Company
irrevocably elected cash settlement for these notes. As a result, the convertible senior notes due in March 2022 were only
dilutive prior to September 15, 2021. All of the Company’s other convertible and exchangeable notes require net share
settlement, using the if-converted method results in a similar dilutive effect as using the treasury stock method under the
previous accounting standard, due to the fact that only in-the-money shares are included in the dilutive effect.
A reconciliation of shares used in calculating income or loss per basic and diluted shares follows (in thousands, except per
share amounts):
Net (loss) income attributable to Encore Capital Group, Inc.
$
(206,492) $
194,564 $
350,782
Year Ended December 31,
2023
2022
2021
Total weighted-average basic shares outstanding
Dilutive effect of stock-based awards
Dilutive effect of convertible and exchangeable senior notes
Total weighted-average dilutive shares outstanding
Basic (loss) income per share
Diluted (loss) income per share
23,670
—
—
23,670
24,142
344
1,606
26,092
30,129
407
617
31,153
$
$
(8.72) $
(8.72) $
8.06 $
7.46 $
11.64
11.26
Anti-dilutive employee stock options outstanding were negligible during the years ended December 31, 2023, 2022, and
2021.
Note 2: 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.
F-14
Table of Contents
•
•
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.
Level 3: Unobservable inputs, including inputs that reflect the reporting entity’s own assumptions.
The Company's cash and cash equivalents, certain other current assets, accounts payable and accrued liabilities, and other
current 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):
Assets
Interest rate cap contracts
Cross-currency swap agreements
Liabilities
Interest rate swap agreements
Cross-currency swap agreements
Fair Value Measurements as of December 31, 2023
Level 1
Level 2
Level 3
Total
$
— $
—
16,950 $
361
— $
—
16,950
361
—
—
(22,510)
(28,039)
—
—
(22,510)
(28,039)
Fair Value Measurements as of December 31, 2022
Level 1
Level 2
Level 3
Total
Assets
Interest rate cap contracts
$
— $
36,807 $
— $
36,807
Liabilities
Cross-currency swap agreements
—
(36,918)
—
(36,918)
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.
Contingent Consideration:
The Company carries certain contingent liabilities resulting from its mergers and acquisition activities. Certain sellers of
the Company’s acquired entities could earn additional earn-out payments in cash based on the entities’ subsequent operating
performance. The Company recorded the acquisition date fair values of these contingent liabilities, based on the likelihood of
contingent earn-out payments, as part of the consideration transferred. The earn-out payments are subsequently remeasured to
fair value at each reporting date, based on actual and forecasted operating performance. All of the Company’s contingent
consideration obligations were fully resolved as of December 31, 2022. There were no new contingent liabilities resulted from
mergers and acquisitions activities for the year ended December 31, 2023.
F-15
Table of Contents
The following table provides a roll-forward of the fair value of contingent consideration, for the years ended
December 31, 2022, and 2021 (in thousands):
Balance as of December 31, 2020
Issuance of contingent consideration in connection with purchase of noncontrolling interest
Change in fair value of contingent consideration
Payment of contingent consideration
Effect of foreign currency translation
Balance as of December 31, 2021
Change in fair value of contingent consideration
Payment of contingent consideration
Effect of foreign currency translation
Balance as of December 31, 2022
Non-Recurring Fair Value Measurement:
Amount
2,957
2,913
(388)
(180)
(84)
5,218
794
(5,273)
(739)
—
$
$
Certain assets are measured at fair value on a nonrecurring basis. The fair values of goodwill and intangible assets are
determined using various valuation techniques under Level 3 fair value hierarchy, refer to “Note 15, Goodwill and Intangible
Assets” for further details. REO assets are 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 $70.6 million and $68.2 million as of December 31,
2023 and December 31, 2022, 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.
The carrying amounts in the following table are included in the consolidated statements of financial condition as
of December 31, 2023 and December 31, 2022 (in thousands):
Financial Assets
Investment in receivable portfolios, net
$
3,468,432 $
3,515,651 $
3,088,261 $
3,242,506
December 31, 2023
December 31, 2022
Carrying
Amount
Estimated Fair
Value
Carrying
Amount
Estimated Fair
Value
Financial Liabilities
Global senior secured revolving credit facility
Encore private placement notes
Senior secured notes(1)
Exchangeable senior notes due September 2023
Convertible senior notes due October 2025
Convertible senior notes due March 2029
Cabot securitisation senior facility
U.S. facility
Other borrowings
________________________
816,880
29,310
816,880
28,922
661,738
68,390
661,738
66,947
1,649,621
1,598,636
1,480,258
1,334,686
—
100,000
230,000
324,646
175,000
24,904
—
136,403
226,794
324,646
175,000
24,904
172,500
100,000
—
423,522
—
23,512
205,227
130,556
—
423,522
—
23,512
(1) Carrying amount represents historical cost, adjusted for any related debt discount or debt premium.
F-16
Table of Contents
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, exchangeable 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 and exchangeable 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 and U.S. facility
approximates fair value due to the use of current market rates that are repriced frequently.
Note 3: 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.
The following table summarizes the fair value of derivative instruments as recorded in the Company’s consolidated
statements of financial condition (in thousands):
Derivatives designated as hedging instruments:
Interest rate cap contracts
Interest rate swap agreements
Cross-currency swap agreements
Cross-currency swap agreements
Derivatives not designated as hedging instruments:
December 31, 2023
December 31, 2022
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Other assets $
14,564
Other assets $
36,807
Other liabilities
(22,510)
Other assets
361
—
—
—
—
Other liabilities
(28,039) Other liabilities
(36,918)
Interest rate cap contracts
Other assets
2,386
—
—
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.
F-17
Table of Contents
The following table summarizes the terms of the derivative instruments designated as hedging instruments as recorded in
the Company’s consolidated statements of financial condition:
Effective date
Maturity Date
Hedge Designation
Notional Amount
Receive Floating
Rate Index
December 31, 2023
January 2020
June 2024
Cash flow hedge
$441.5 million
3-month EURIBOR
November 2021
September 2024
Cash flow hedge
$318.3 million
September 2024
September 2026
Cash flow hedge
$324.6 million
SONIA
SONIA
Interest rate cap contracts
2019 Cap
2021 Cap(1)
2024 Cap
Interest rate swap agreements
2023 Euro IR Swap
2024 Euro IR Swaps
October 2023
June 2024
January 2028
January 2028
Cash flow hedge
$110.4 million
3-month EURIBOR
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
2023 GBP Swaps
September 2020
October 2025
Fair value hedge
$386.3 million
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.
Effective date
Maturity Date
Hedge Designation
Notional Amount
Receive Floating
Rate Index
December 31, 2022
Interest rate cap contracts
2019 Cap
2021 Cap
January 2020
June 2024
Cash flow hedge
$428.9 million
3-month EURIBOR
November 2021
September 2024
Cash flow hedge
$423.5 million
SONIA
Cross-currency swap agreements
2020 Euro Swaps
September 2020
October 2025
Cash flow hedge
$375.3 million
—
The Company expects to reclassify approximately $10.6 million of net derivative gain from OCI into earnings relating to
its cash flow designated derivatives within the next 12 months.
The following table summarizes the effects of derivatives designated as hedging instruments in the Company’s
consolidated financial statements (in thousands):
Derivatives Designated as Hedging
Instruments
Gain (Loss)
Recognized in OCI
Year Ended December 31,
2023
2022
2021
Gain (Loss)
Reclassified
from OCI into
Income
Location of Gain (Loss) Reclassified
from OCI into Income
Year Ended December 31,
2023
2022
2021
Interest rate swap agreements
$ (22,184) $ — $
(69) Interest expense
Interest rate cap contracts
(22,820)
33,354
1,824
Interest expense
Cross-currency swap agreements
3,496
(27,617)
(33,464) Interest expense
$ 325 $ — $ (8,743)
(1,856)
(653)
(568)
(5,057)
(7,601) (4,984)
Other income (expense)
5,886
(22,394) (28,548)
Derivatives Not Designated as Hedging Instruments
In September 2023, the Company partially dedesignated the 2021 Cap. As a result of the partial dedesignation, the
Company reclassified the existing deferred gain of approximately $3.7 million from accumulated other comprehensive loss into
Other income (expense), net in its consolidated statements of operations for the year ended December 31, 2023. As of
December 31, 2023, £100.0 million (approximately $127.3 million based on an exchange rate of $1.00 to £0.79 , the exchange
rate as of December 31, 2023) of the notional amount of the 2021 Cap is not designated as hedging instrument for accounting
purposes. Refer above for terms relating to the 2021 Cap.
F-18
Table of Contents
The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s
consolidated statements of operations during the periods presented (in thousands):
Derivatives Not Designated as Hedging
Instruments
Location of Gain (Loss) Recognized in Income
on Derivative
Amount of Gain (Loss) Recognized in Income
Year ended December 31,
2023
2022
2021
Foreign currency exchange contracts
Other expense
$
— $
— $
Interest rate cap contracts
Interest rate swap agreements
Other expense
Other expense
(556)
—
—
—
(20)
—
(73)
Note 4: Investment in Receivable Portfolios, Net
Investment in receivable portfolios, net consist of the following as of the dates presented (in thousands):
Amortized cost
Negative allowance for expected recoveries
Balance, end of period
Year Ended December 31,
2023
2022
$
$
— $
3,468,432
3,468,432 $
—
3,088,261
3,088,261
The following table summarizes the changes in the balance of investment in receivable portfolios, net during the periods
presented (in thousands):
Year Ended December 31,
2023
2022
2021
Balance, beginning of period
$
3,088,261 $
3,065,553 $
3,291,918
Negative allowance for expected recoveries - current period
purchases(1)
Collections applied to investment in receivable portfolios,
net(2)
Changes in recoveries(3)
Put-backs and Recalls
Deconsolidation of receivable portfolios
Disposals and transfers to real estate owned
Foreign currency translation adjustments
Balance, end of period
_______________________
1,073,812
800,507
664,529
(658,130)
(709,176)
(1,019,629)
(82,530)
(13,606)
—
(7,957)
68,582
93,145
(9,938)
—
(8,335)
(143,495)
199,136
(7,249)
(9,352)
(8,071)
(45,729)
$
3,468,432 $
3,088,261 $
3,065,553
(1) The table below provides the detail on the establishment of negative allowance for expected recoveries of portfolios purchased during the periods
presented:
Purchase price
Allowance for credit losses
Amortized cost
Noncredit discount
Face value
Write-off of amortized cost
Write-off of noncredit discount
Negative allowance
Year Ended December 31,
2023
2022
2021
$
1,073,812 $
800,507 $
3,430,036
4,503,848
5,333,109
9,836,957
(4,503,848)
(5,333,109)
1,073,812
2,332,112
3,132,619
3,216,500
6,349,119
(3,132,619)
(3,216,500)
800,507
664,529
1,823,582
2,488,111
3,284,369
5,772,480
(2,488,111)
(3,284,369)
664,529
664,529
Negative allowance for expected recoveries - current period purchases
$
1,073,812 $
800,507 $
F-19
Table of Contents
(2) Collections applied to investment in receivable portfolios, net, is calculated as follows during the periods presented:
Cash Collections
Less - amounts classified to revenue from receivable portfolios
Collections applied to investment in receivable portfolios, net
$
$
1,862,567 $
1,911,537 $
(1,204,437)
(1,202,361)
658,130 $
709,176 $
2,307,359
(1,287,730)
1,019,629
(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:
Year Ended December 31,
2023
2022
2021
Recoveries (below) above forecast
Changes in expected future recoveries
Changes in recoveries
Year Ended December 31,
2023
2022
2021
$
$
(33,405) $
(49,125)
(82,530) $
29,253 $
63,892
93,145 $
326,006
(126,870)
199,136
Recoveries above or below forecast represent over and under-performance in the reporting period, respectively.
Collections during the year ended December 31, 2023, under-performed the projected cash flows by approximately $33.4
million.
Changes in expected future recoveries are reassessed each quarter, the Company considers, among other factors, historical
and current collection performance, changes in consumer behavior, and the macroeconomic environment when updating the
forecasts of expected lifetime recoveries. As a result, the Company has updated its forecast, including reducing expected future
recoveries for certain static pools, primarily the 2022 and 2021 U.S. vintages, where the initial cash flow forecasts were
established during a period marked by changed consumer behavior, which caused challenges in forecasting. The changes to the
forecast, when discounted to present value, resulted in a net negative change in expected future period recoveries of
approximately $49.1 million during the year ended December 31, 2023.
Note 5: Composition of Certain Financial Statement Items
Property and Equipment, Net
Property and equipment consist of the following as of the dates presented (in thousands):
Computer equipment and software
Leasehold improvements
Furniture, fixtures and equipment
Construction in process
Other
Less: accumulated depreciation
December 31,
2023
December 31,
2022
$
$
187,549 $
34,720
19,962
28,639
2,229
273,099
(169,140)
103,959 $
209,803
34,950
20,155
2,546
1,600
269,054
(155,154)
113,900
Depreciation expense related to property and equipment was $38.2 million, $40.1 million, and $42.2 million during the
years ended December 31, 2023, 2022, and 2021, respectively.
F-20
Table of Contents
Other Assets
Other assets consist of the following as of the dates presented (in thousands):
Real estate owned
Operating lease right-of-use assets
Prepaid expenses
Derivative instruments
Deferred tax assets
Service fee receivables
Income tax deposits
Identifiable intangible assets, net
Other
Total
Note 6: Borrowings
December 31,
2023
December 31,
2022
$
70,590 $
67,019
32,910
17,311
17,277
9,080
8,735
48
70,286
68,242
70,074
30,376
36,807
18,069
16,094
18,259
22,112
61,040
$
293,256 $
341,073
The Company is in compliance in all material respects with all covenants under its financing arrangements as of
December 31, 2023. The components of the Company’s consolidated borrowings were as follows (in thousands):
Global senior secured revolving credit facility
Encore private placement notes
Senior secured notes
Convertible notes and exchangeable notes
Cabot securitisation senior facility
U.S. facility
Other
Finance lease liabilities
Less: debt discount and issuance costs, net of amortization
Total
December 31,
2023
December 31,
2022
$
816,880 $
29,310
1,654,989
330,000
324,646
175,000
24,904
2,818
3,358,547
(40,516)
661,738
68,390
1,485,888
272,500
423,522
—
23,512
5,675
2,941,225
(42,404)
$
3,318,031 $
2,898,821
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”). In May 2023, the Company amended the Global Senior Facility to extend
the termination date of the facility from September 2026 to September 2027. In addition, the size of the facility was increased
by $40.0 million to $1,180.0 million. On October 30, 2023, pursuant to the terms of the Global Senior Facility the Company
further increased the size of the Company’s Global Senior Facility by $23.0 million to $1,203.0 million. As of December 31,
2023, 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:
•
•
•
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;
F-21
Table of Contents
•
•
•
•
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 December 31, 2023, the outstanding borrowings under the Global Senior Facility were $816.9 million. The
weighted average interest rate of the Global Senior Facility was 7.58% and 4.42% for the years ended December 31, 2023 and
December 31, 2022, respectively. Available capacity under the Global Senior Facility, after taking into account applicable debt
covenants, was approximately $363.8 million as of December 31, 2023.
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 December 31, 2023, $29.3 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):
Encore 2025 Notes
Encore 2026 Notes
Encore 2028 Notes
Encore 2028 Floating Rate
Notes
______________________
December 31,
2023
December 31,
2022
$
386,324 $
375,325
381,937
318,280
363,019
302,516
Issue Currency Maturity Date
Interest Payment
Dates
Interest Rate
EUR
GBP
GBP
Oct 15, 2025
Apr 15, Oct 15
Feb 15, 2026
Feb 15, Aug 15
Jun 1, 2028
Jun 1, Dec 1
Jan 15, Apr 15,
Jul 15, Oct 15
4.875 %
5.375 %
4.250 %
EURIBOR
+4.250%(1)
568,448
445,028
EUR
Jan 15, 2028
$ 1,654,989 $ 1,485,888
(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.
On October 16, 2023, the Company issued an additional €100.0 million (approximately $110.4 million based on an
exchange rate of $1.00 to €0.91, the exchange rate as of December 31, 2023) aggregate principal amount of Encore 2028
Floating Rate Notes at an issue price of 99.01%. The Company used the proceeds from this offering to repay drawings under its
Global Senior Facility and to pay certain transaction fees and expenses incurred in connection with the offering of the notes.
The weighted average interest rate of the 2028 Floating Rate Notes was 7.44% and 4.54% for the years ended December 31,
2023 and 2022, respectively. As discussed in “Note 3: Derivatives and Hedging Instruments,” the Company uses interest rate
derivative contracts to manage its risk related to the interest rate fluctuation in its variable interest rate bearing debt. The
weighted average interest rate of the 2028 Floating Rate Notes including the effect of the hedging instruments was 4.52% and
4.26% for the years ended December 31, 2023 and 2022, respectively.
F-22
Table of Contents
Convertible Notes and Exchangeable Notes
The following table provides a summary of the principal balance, maturity date and interest rate for the Company’s
convertible and exchangeable senior notes (the “Convertible Notes” or “Exchangeable Notes,” as applicable) ($ in thousands):
December 31, 2023 December 31, 2022
Maturity Date
Interest Payment
Dates
Interest Rate
2023 Exchangeable Notes
$
— $
2025 Convertible Notes
2029 Convertible Notes
100,000
230,000
172,500
100,000
Sep 1, 2023 Mar 1, Sep 1
Oct 1, 2025 Apr 1, Oct 1
—
Mar 15, 2029 Mar 15, Sep 15
4.500 %
3.250 %
4.000 %
$
330,000 $
272,500
In March 2023, Encore issued $230.0 million aggregate principal amount of 4.00% convertible senior notes that mature
on March 15, 2029 in a private placement transaction (the “2029 Convertible Notes”). Interest on the 2029 Convertible Notes is
payable semi-annually.
The Company used a portion of the net proceeds from the issuance of the 2029 Convertible Notes to repurchase, in
separate privately negotiated transactions, approximately $154.8 million aggregate principal amount of its 2023 Exchangeable
Notes for approximately $192.5 million. The repurchase met the criteria for an induced conversion and accordingly, the
Company recognized expense of $2.7 million, representing the fair value of the consideration paid to certain holders of the
2023 Exchangeable Notes in excess of the fair value which they were otherwise entitled to receive pursuant to the existing
conversion terms on the respective settlement dates. The amount is included in Other income (expense), net, in the Company’s
condensed consolidated statements of operations during the year ended December 31, 2023. The remaining excess above the
principal amount of the repurchased 2023 Exchangeable Notes was recognized in the Company’s stockholder’s equity.
Additionally, in March 2023, the Company received proceeds of approximately $28.5 million from the unwind of the
capped call options associated with the repurchased portion of the 2023 Exchangeable Notes. Since the capped call options
were determined to be equity instruments, the partial unwind of the capped call options was recorded as an increase in
stockholder’s equity in the consolidated statements of financial condition as of December 31, 2023.
On September 1, 2023, the remaining $17.7 million principal amount of the 2023 Exchangeable Notes matured. The
Company settled in cash for approximately $20.1 million both the outstanding 2023 Exchangeable Notes and the $2.4 million
excess above the principal amount. The excess above the principal amount represents the conversion spread and was recognized
as a reduction in stockholder's equity. Concurrent with the settlement, the Company received $2.4 million from its capped call
options associated with the conversion of the remaining 2023 Exchangeable Notes. The proceeds from the exercise of the
capped call options were recorded as an increase in stockholder's equity in the Company’s consolidated statement of financial
condition as of December 31, 2023. As a result, no gain or loss was recognized as a result of the final settlement of the 2023
Exchangeable Notes in the Company's consolidated statement of operations for the year ended December 31, 2023.
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. The cost of the capped call transactions was approximately $18.5 million. These hedging instruments have been
determined to be indexed to the Company’s own stock and meet the criteria for equity classification and therefore the cost was
included as a reduction to stockholder’s equity in the consolidated statement of financial condition as of December 31, 2023.
Subsequent changes in fair value of these financial instruments are not recognized in the Company’s consolidated financial
statements. The Company did not hedge the 2025 Convertible Notes.
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Certain key terms related to the convertible features as of December 31, 2023 are listed below ($ in thousands, except
conversion or exchange price):
Initial conversion price
Closing stock price at date of issuance
Closing stock price date
Initial conversion rate (shares per $1,000 principal amount)
Adjusted conversion rate (shares per $1,000 principal amount)
Adjusted conversion price(1)
Adjusted effective conversion price(2)
Excess of if-converted value compared to principal(3)
Conversion date
______________________
2025 Convertible
Notes
2029 Convertible
Notes
40.00 $
32.00 $
65.89
51.68
Sep 4, 2019
Feb 28, 2023
25.0000
25.1310
39.79 $
39.79 $
27,540 $
15.1763
15.1763
65.89
82.69
—
Jul 1, 2025
Dec 15, 2028
$
$
$
$
$
(1) Pursuant to the indenture for the Company’s 2025 Convertible Notes, the conversion rate for the 2025 Convertible Notes was adjusted upon the
completion of the Company’s tender offer in December 2021.
(2) As discussed above, the Company maintains a hedge program that increases the effective conversion price for the 2029 Convertible Notes to $82.69.
(3) Represents the premium the Company would have to pay assuming the Convertible Notes were converted on December 31, 2023 using a hypothetical
share price based on the closing stock price on December 31, 2023.
Prior to the close of business on the business day immediately preceding their respective free conversion date (listed
above), holders may convert their Convertible Notes under certain circumstances set forth in the applicable indentures. On or
after their respective free conversion dates until the close of business on the second scheduled trading day immediately
preceding their respective maturity date, holders may convert their notes at any time.
In the event of conversion, the Convertible Notes are convertible into cash up to the aggregate principal amount of the
notes and the excess conversion premium, if any, may be settled in cash or shares of the Company’s common stock at the
Company’s election and subject to certain restrictions contained in each of the indentures governing the Convertible Notes.
The Company’s convertible and exchangeable notes are carried as a single liability, which reflects the principal amount of
the convertible and exchangeable notes. Interest expense related to the Convertible Notes and Exchangeable Notes was
approximately $12.6 million, $12.0 million, and $16.8 million for the years ended December 31, 2023, 2022, and 2021,
respectively.
Cabot Securitisation Senior Facility
Prior to November 20, 2023, Cabot Securitisation UK Ltd (“Cabot Securitisation”), an indirect subsidiary of Encore, had a
senior facility for a committed amount of £350.0 million (as amended, the “Cabot Securitisation Senior Facility”), which would
mature in September 2026. Prior to November 20, 2023, funds drawn under the Cabot Securitisation Senior Facility beared
interest at a rate per annum equal to SONIA plus a margin of 3.00% plus, for periods after September 18, 2024, a step-up
margin ranging from zero to 1.00%. The Company amended its Cabot Securitisation Senior Facility, effective November 20,
2023, to extend the maturity date from September 2026 to September 2028 and reduce the committed amount from
£350.0 million to £255.0 million. Effective November 20, 2023, funds drawn under the Cabot Securitisation Senior Facility
bear interest at a rate per annum equal to SONIA plus a margin of 3.20% plus, for periods after September 18, 2026, a step up
margin ranging from zero to 1.00%.
As of December 31, 2023, the outstanding borrowings under the Cabot Securitisation Senior Facility were £255.0 million
(approximately $324.6 million based on an exchange rate of $1.00 to £0.79, the exchange rate as of December 31, 2023). The
obligations of Cabot Securitisation under the Cabot Securitisation Senior Facility are secured by first ranking security interests
over all of Cabot Securitisation’s property, assets and rights (including receivables purchased from Cabot Financial UK from
time to time), the book value of which was approximately £324.6 million (approximately $413.2 million based on an exchange
rate of $1.00 to £0.79, the exchange rate as of December 31, 2023) as of December 31, 2023. The weighted average interest rate
of the Cabot Securitisation Senior Facility was 7.68% and 4.49% for the years ended December 31, 2023 and 2022,
respectively. As discussed in “Note 3: 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 Cabot Securitisation Senior Facility including the effect of the hedging instruments was 5.41% and 4.33%
for the years ended December 31, 2023 and 2022, respectively.
F-24
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Cabot Securitisation is a securitized financing vehicle and is a VIE for consolidation purposes. Refer to “Note 7: Variable
Interest Entities” for further details.
U.S. Facility
In October 2023, an indirect subsidiary of Encore (“U.S. Financing Subsidiary”), entered into a facility for a committed
amount of $175.0 million (the “U.S. Facility”). The U.S. Facility matures in October 2026. Funds drawn under the U.S. Facility
bear interest at a rate per annum equal to Term SOFR plus a margin of 3.5%.
As of December 31, 2023, the outstanding borrowings under the U.S. Facility were $175.0 million. The obligations under
the U.S. Facility are secured by first ranking security interests over all of U.S. Financing Subsidiary’s assets and rights. As of
December 31, 2023, this included receivables acquired from MCM, the book value of which was approximately $302.8 million.
The weighted average interest rate of the U.S. Facility was 8.84% for the year ended December 31, 2023. As discussed in “Note
3: 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 U.S. Facility including
the effect of the hedging instruments was 8.25% for the year ended December 31, 2023.
The U.S. Facility is a securitized financing vehicle and is a VIE for consolidation purposes. Refer to “Note 7: Variable
Interest Entities” for further details.
Finance Lease Liabilities
The Company has finance lease liabilities primarily for computer equipment. As of December 31, 2023, the Company’s
finance lease liabilities were approximately $2.8 million. Refer to “Note 12: Leases” for further details.
Maturity Schedule
The aggregate amounts of the Company’s borrowings, including finance lease liabilities, maturing in each of the next five
years and thereafter are as follows (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total
$
$
41,363
494,333
560,887
819,319
1,211,374
231,271
3,358,547
Note 7: Variable Interest Entities
A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of
the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb
expected losses, or the right to receive expected residual returns of the entity. The primary beneficiary is identified as the
variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s
economic performance and the obligation to absorb expected losses or the right to receive residual returns from the entity that
could potentially be significant to the VIE. The Company consolidates VIEs when it is the primary beneficiary.
As of December 31, 2023, the Company’s VIEs include certain securitized financing vehicles and other immaterial special
purpose entities that were created to purchase receivable portfolios in certain geographies. The Company is the primary
beneficiary of these VIEs. The Company has the power to direct the activities of the VIEs including the ability to exercise
discretion in the servicing of the financial assets and has the right to receive residual returns that could potentially be significant
to the VIEs. The Company’s exposure to loss is limited to the total of the carrying value of the VIEs. The Company evaluates
its relationships with its VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary.
Most assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to
satisfy claims against the Company’s general assets. Conversely, liabilities recognized as a result of consolidating these VIEs
do not represent additional claims on the Company’s general assets; rather, they represent claims against the specific assets of
the VIE.
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Note 8: Common Stock
On August 12, 2015, the Company’s Board of Directors approved a $50.0 million share repurchase program. On May 5,
2021, the Company announced that the Board of Directors had approved an increase in the size of the repurchase program from
$50.0 million to $300.0 million (an increase of $250.0 million). Repurchases under this program are expected to be made with
cash on hand 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 the Company’s management and Board of Directors,
and in accordance with market conditions, other corporate considerations, and applicable regulatory requirements. The program
does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any
time at the Company’s discretion. There were no shares repurchased during the year ended December 2023. During the years
ended December 2022 and 2021, the Company repurchased 1,497,184 and 2,598,034 shares of its common stock for
approximately $86.9 million and $121.2 million, respectively. The Company’s practice is to retire the shares repurchased.
On November 4, 2021, the Company commenced a modified “Dutch Auction” tender offer to purchase up to
$300.0 million of shares of its common stock with a price range between $52.00 and $60.00 per share. On December 9, 2021,
the Company announced the final results of the tender offer. Through the tender offer, the Company purchased 4,471,995
shares of common stock at a price of $60.00 per share, for a total cost of $268.3 million, excluding fees and expenses. The
shares purchased through the tender offer were immediately retired.
The Company records the excess of repurchase price over the par amount to additional paid-in capital, then to retained
earnings once additional paid-in capital is reduced to zero. Direct costs relating to the stock repurchases are treated as stock
issuance costs and are included in stockholders’ equity.
Note 9: Accumulated Other Comprehensive Loss
A summary of the Company’s changes in accumulated other comprehensive loss by component is presented below (in
thousands):
Derivatives
Currency Translation
Adjustments
Accumulated Other
Comprehensive Loss
Balance at December 31, 2020
$
(10,154) $
Other comprehensive loss before reclassification
Reclassification
Removal of OCI in connection with divestiture
Tax effect
Balance at December 31, 2021
Other comprehensive income (loss) before
reclassification
Reclassification
Tax effect
Balance at December 31, 2022
Other comprehensive (loss) income before
reclassification
Reclassification
Tax effect
(31,709)
44,544
—
(2,165)
516
5,737
30,648
(407)
36,494
(41,508)
(2,970)
4,891
(58,659) $
(15,309)
—
19,904
—
(54,064)
(78,232)
—
(3,014)
(135,310)
15,376
—
(893)
(68,813)
(47,018)
44,544
19,904
(2,165)
(53,548)
(72,495)
30,648
(3,421)
(98,816)
(26,132)
(2,970)
3,998
Balance at December 31, 2023
$
(3,093) $
(120,827) $
(123,920)
Note 10: Stock-Based Compensation
In April 2017, Encore’s Board of Directors (the “Board”) approved the Encore Capital Group, Inc. 2017 Incentive Award
Plan (the “2017 Plan”), which was then approved by the Company’s stockholders on June 15, 2017. The 2017 Plan superseded
the Company’s 2013 Incentive Compensation Plan (as amended, the “2013 Plan”), which had previously superseded the
Company’s 2005 Stock Incentive Plan (“2005 Plan”). Board members, employees, and consultants of Encore and its
subsidiaries and affiliates are eligible to receive awards under the 2017 Plan. Subject to certain adjustments, the Company may
grant awards for an aggregate of 5,713,571 shares of the Company’s common stock under the 2017 Plan. The aggregate number
of shares available for issuance under the 2017 Plan will be reduced by 2.12 shares for each share delivered in settlement of any
full value award and by one share for each share delivered in settlement of any stock option or stock appreciation right. If an
award under the 2017 Plan or the 2013 Plan expires, lapses or is terminated, exchanged for cash, surrendered, repurchased,
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canceled without having been fully exercised or forfeited, the unused shares covered by such award will again become or again
be available for award grants under the 2017 Plan. Shares available under the 2017 Plan will be increased by 2.12 shares for
each share subject to a full value award and by one share for each share subject to a stock option or a stock appreciation right, in
each case, that become or again be available for issuance pursuant to the foregoing share counting provisions. The 2017 Plan
provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, dividend
equivalent rights, stock appreciation rights, cash awards, performance-based awards and any other types of awards not
inconsistent with the 2017 Plan.
Total stock-based compensation expense during the years ended December 31, 2023, 2022, and 2021 was $13.9 million,
$15.4 million, and $18.3 million, respectively. The actual tax benefit from stock-based compensation arrangements totaled $1.8
million, $4.2 million, and $2.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.
The Company’s stock-based compensation arrangements are described below:
Stock Options
Under the 2005 Plan, option awards were generally granted with an exercise price equal to the market price of the
Company’s stock at the date of issuance. They generally vest over three to five years of continuous service, and have ten-year
contractual terms. Other than the Performance Options discussed below, no options have been awarded under the 2013 Plan or
2017 Plan.
There were no options granted during the years ended December 31, 2023, 2022, or 2021. All outstanding stock options
previously granted under the 2005 plan have been fully vested and all related compensation expense has been fully recognized
prior to December 31, 2022. All exercisable options have been exercised prior to December 31, 2022.
The total intrinsic value of options exercised was $0.2 million during both years ended December 31, 2022 and 2021.
Cash received from option exercise under all share-based payment arrangements during the years ended December 31, 2022
and 2021 was negligible.
Performance Stock Options
Under the 2017 Plan and the 2013 Plan, the Company granted performance stock options, with an exercise price equal to
the closing price of the Company’s stock at the date of issuance, that vest in equal annual installments over a three year service
period but only if, within four years from the date of grant, the 20 trading day average of the closing price of the Company’s
stock (subject to dividend-related adjustments) exceeded a target equal to a 25% increase from the closing price on the date of
grant. These performance options have a seven-year contractual life.
A summary of the Company’s performance stock option activity as of December 31, 2023, and changes during the year
then ended, are presented below:
Outstanding and exercisable as of December 31, 2022
Exercised
Outstanding and exercisable as of December 31, 2023
Number of
Shares
Weighted Average
Exercise Price
79,949 $
(79,949) $
— $
30.95
30.95
—
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in thousands)
— $
—
As of December 31, 2023, all related compensation expense has been fully recognized. No performance stock options
were granted during the years ended December 31, 2023, 2022, and 2021. The total intrinsic value of performance options
exercised during the year ended December 31, 2023, 2022, and 2021 was $1.3 million, $0.6 million, and $1.1 million,
respectively. Cash received from performance option exercise during the years ended December 31, 2023, 2022, and 2021 was
$1.7 million, $0.6 million, and $1.6 million, respectively.
Non-Vested Shares
The Company’s 2017 Plan (and previously, the 2013 Plan and 2005 Plan), permits restricted stock units, restricted stock
awards, performance stock units, and performance stock awards (collectively “stock awards”). The fair value of non-vested
shares with a service condition and/or a performance condition that affect vesting is equal to the closing sale price of the
Company’s common stock on the grant date. Compensation expense is recognized only for the awards that ultimately vest. The
Company has certain share awards that include market conditions that affect vesting. These shares vest based on the Company’s
three-year relative total stockholder return compared to the other companies in the S&P SmallCap 600 Financial Sector Index
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as of the date of grant. The fair value of these shares is estimated using a lattice model. For the majority of non-vested shares,
shares are issued on the vesting dates net of the number of shares needed to satisfy minimal statutory tax withholding
requirements. The tax obligations are then paid by the Company on behalf of the employees. A summary of the Company’s
stock award activities as of December 31, 2023, and changes during the year then ended, is presented below:
Non-vested as of December 31, 2022
Awarded
Vested
Cancelled
Non-vested as of December 31, 2023
________________________
Non-Vested
Shares (1)
Weighted Average
Grant Date
Fair Value
542,935 $
325,765 $
(315,153) $
(34,834) $
518,713 $
51.31
49.97
45.95
55.36
53.45
(1) Certain of the Company’s stock awards have a vesting matrix under which the stock awards can vest at a maximum level that is up to 200% of the
shares that would vest for achieving the performance goals at target. The number of shares presented is based on achieving the performance goals at
target levels as defined in the stock award agreements. As of December 31, 2023 and 2022, the maximum number of non-vested performance shares
that could vest under the provisions of the agreements was 659,343 and 687,320, respectively.
Unrecognized compensation expense related to non-vested shares as of December 31, 2023 was $13.7 million. The
weighted-average remaining expense period, based on the unamortized value of these outstanding non-vested shares, was
approximately 1.4 years. The fair value of restricted stock units and restricted stock awards vested for the years ended
December 31, 2023, 2022, and 2021 was $15.7 million, $26.9 million, and $16.9 million, respectively. The weighted average
grant date fair value for stock awards granted during the years ended December 31, 2023, 2022, and 2021 was $49.97, $60.45,
and $42.09, respectively.
Note 11: Income Taxes
Income or loss before provision for income taxes consisted of the following (in thousands):
US
Foreign
Total (loss) income before provision for income taxes
Year Ended December 31,
2023
2022
2021
$
$
61,356 $
331,009 $
(241,620)
(20,020)
(180,264) $
310,989 $
390,607
45,934
436,541
The provision for income tax consisted of the following (in thousands):
Current expense (benefit):
Federal
State
Foreign
Deferred expense (benefit):
Federal
State
Foreign
Provision for income taxes
Year Ended December 31,
2023
2022
2021
$
$
59,558 $
17,677
4,909
82,144
(49,028)
(8,685)
1,797
(55,916)
26,228 $
59,105 $
11,803
(893)
70,015
8,142
6,290
31,978
46,410
116,425 $
33,582
5,787
10,600
49,969
49,512
5,904
(20,045)
35,371
85,340
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Table of Contents
The reconciliation of federal statutory income tax rate to our effective tax rate was as follows:
Federal provision
State provision
Change in valuation allowance (1)
Goodwill impairment (2)
Taxable gain (deductible loss) in foreign jurisdiction (3)
Forfeit benefit due to merger/liquidations (4)
Other
Effective rate
________________________
Year Ended December 31,
2023
2022
2021
21.0 %
(3.0) %
7.3 %
(28.3) %
2.9 %
(14.7) %
0.3 %
(14.5) %
21.0 %
5.0 %
13.2 %
— %
(2.7) %
— %
0.9 %
37.4 %
21.0 %
2.3 %
(2.3) %
— %
— %
— %
(1.5) %
19.5 %
(1)
In 2023, includes reduction in valuation allowance due to the forfeit of tax benefits on merger or liquidation of foreign subsidiaries that maintained full
valuation allowances on their deferred tax assets. In 2022, includes valuation allowance recorded on U.K. deferred tax assets.
(2) During the fourth quarter of 2023, the Company recorded a non-cash goodwill impairment charge of $238.2 million at the Cabot reporting unit. Refer to
“Note 15: Goodwill and Identified Intangible Assets” for further details.
(3)
In 2023, represents a taxable gain recognized in a foreign subsidiary. In 2022, represents deductible loss recognized in a foreign subsidiary that
maintains a full valuation allowance on its deferred tax assets. Accordingly, the deductible loss increased the valuation allowance and did not result in
any tax benefit during the year ended December 31, 2022.
(4) Represents the forfeit of tax benefits on merger or liquidation of foreign subsidiaries that maintained full valuation allowances on their deferred tax
assets.
The Company’s subsidiary in Costa Rica is operating under a 100% tax holiday through December 31, 2026. The impact
of the tax holiday in Costa Rica for the years ended December 31, 2023, 2022 and 2021 was immaterial.
The Company has not provided for applicable income or withholding taxes on the undistributed earnings from continuing
operations for certain of its subsidiaries operating outside of the United States. Undistributed net income of these subsidiaries as
of December 31, 2023, were approximately $152.9 million. Such undistributed earnings are considered permanently reinvested.
The Company does not provide deferred taxes on translation adjustments of unremitted earnings under the indefinite
reinvestment exemption. Determination of the amount of unrecognized deferred tax liability related to these earnings is not
practical due to the complexities of a hypothetical calculation. Subsidiaries operating outside of the United States for which the
Company does not consider under the indefinite reinvestment exemption have no material undistributed earnings or outside
basis differences and therefore no U.S. taxes have been provided.
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Table of Contents
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the carrying amounts for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities were as follows (in thousands):
December 31,
2023
December 31,
2022
Deferred tax assets:
Net operating losses
Operating lease liabilities
Accrued expenses
Difference in basis of bond and loan costs
Difference in basis of receivable portfolio
Stock-based compensation
Difference in basis of depreciable and amortizable assets
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets net of valuation allowance
Deferred tax liabilities:
Accrued expenses
Difference in basis of bond and loan costs
Difference in basis of receivable portfolio
Stock-based compensation
Right-of-use asset
Difference in basis of depreciable and amortizable assets
Prepaid expenses
Other
Total deferred tax liabilities
Net deferred tax liability(1)
________________________
$
50,061 $
16,938
9,048
4,155
22,070
3,916
1,957
5,303
113,448
(54,993)
58,455
(76)
(445)
70,543
12,222
10,800
—
23,751
4,960
2,057
2,396
126,729
(66,625)
60,104
(443)
(1,003)
(56,263)
(109,787)
—
(14,306)
(8,596)
(545)
(3,087)
(83,318)
(24,863) $
$
(970)
(9,794)
(16,807)
(875)
(10,206)
(149,885)
(89,781)
(1) The Company operates in multiple jurisdictions. In accordance with authoritative guidance relating to income taxes, deferred taxes and liabilities are
netted for each tax-paying component of the Company within a particular tax jurisdiction, and presented as a single amount in the statement of financial
condition.
As of December 31, 2023, certain of the Company’s foreign subsidiaries have net operating loss carry forwards of
approximately $197.6 million, which will begin to expire in 2024. Certain of the Company’s domestic subsidiaries have state
net operating losses, which will begin to expire in 2035.
Valuation allowances are recorded against deferred tax assets, including certain net operating losses recorded as deferred
tax assets, if the Company believes it is more likely than not that some or all of the deferred tax assets will not be realized. As
of December 31, 2023, valuation allowances decreased by $11.6 million, as compared to December 31, 2022. The decrease in
valuation allowance is primarily related to the forfeit of tax benefits on merger or liquidation of foreign subsidiaries that
maintained full valuation allowances on their deferred tax assets.
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Table of Contents
A reconciliation of the beginning and ending amounts of unrecognized tax benefit is as follows (in thousands):
Balance as of December 31, 2020
Decrease related to prior year tax positions
Decrease related to expiration of statute of limitations
Increase related to prior year tax positions
Increase related to current year tax positions
Balance as of December 31, 2021
Decrease related to prior year tax positions
Decrease related to settlements with taxing authorities
Decrease related to expiration of statute of limitations
Increase related to prior year tax positions
Increase related to current year tax positions
Balance as of December 31, 2022
Increase related to prior year tax positions
Increase related to current year tax positions
Decrease related to expiration of statute of limitations
Other
Balance as of December 31, 2023
Amount
$
$
6,781
(2,034)
(712)
261
251
4,547
(1,296)
(713)
(115)
874
691
3,988
2,302
649
(69)
91
6,961
The Company had gross unrecognized tax benefits, inclusive of penalties and interest, of $8.2 million, $4.9 million and
$4.6 million as of December 31, 2023, 2022, and 2021 respectively. As of December 31, 2023, 2022 and 2021, there was $5.0
million, $2.5 million and $1.6 million, respectively, of unrecognized tax benefit that if recognized, would result in a net tax
benefit. During the year ended December 31, 2023, the increase in the Company's gross unrecognized tax benefit was primarily
due a prior year position related to a domestic entity. During the years ended December 31, 2022 and 2021, the decreases in the
Company's gross unrecognized tax benefit were primarily due to the release of prior year positions related to foreign entities.
The Company believes that an adequate provision has been made for any adjustments that may result from tax
examinations. However, it is reasonably possible that certain changes may occur within the next 12 months, which could
significantly increase or decrease the balance of the Company’s gross unrecognized tax benefits.
The Company recognizes interest and penalties related to income tax as a component of the provision for income taxes.
Interest and penalties expensed during the years ended December 31, 2023, 2022 and 2021 were immaterial. Interest and
penalties accrued as of December 31, 2023, 2022 and 2021 were immaterial.
The Company files federal, state and non-U.S. income tax returns in jurisdictions with varying statutes of limitations. The
Company is subject to examination of its income tax returns by various taxing authorities, and the timing of the resolution of
income tax examinations cannot be predicted with certainty. In general, the Company is subject to examination for tax years
after December 31, 2019 for the U.S. federal jurisdiction, after December 31, 2019 for U.S state jurisdictions, and after
December 31, 2018 in major foreign jurisdictions.
The Company's management regularly assesses the likelihood of adverse outcomes resulting from examinations, if any, to
determine the adequacy of the Company's provision for income taxes. If any issues addressed in the Company's tax
examinations are resolved in a manner not consistent with management's expectations, the Company could be required to adjust
its provision for income taxes in the period such resolution occurs.
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Note 12: Leases
The majority of the Company’s leases are for corporate offices, various facilities, and information technology equipment.
The components of lease expense were as follows during the periods presented (in thousands):
Operating lease costs(1)
Finance lease costs
Amortization of ROU assets
Interest on lease liabilities
Total lease costs
________________________
Year Ended December 31,
2023
2022
2021
15,102 $
18,403 $
17,272
2,804
168
4,296
312
18,074 $
23,011 $
3,848
419
21,539
$
$
(1) Operating lease expenses are included in general and administrative expenses in the Company’s consolidated statements of operations. Costs include
short-term and variable lease components which were not material for the periods presented.
The following table provides supplemental consolidated statement of financial condition information related to leases as
of the dates presented (in thousands):
Classification
December 31, 2023
December 31, 2022
Assets
Operating lease ROU assets
Finance lease ROU assets
Total lease ROU assets
Liabilities
Operating lease liabilities
Finance lease liabilities
Total lease liabilities
Other assets
Property and equipment, net
Other liabilities
Borrowings
$
$
$
$
67,019 $
18,571
85,590 $
81,467 $
2,818
84,285 $
70,074
18,337
88,411
83,598
5,675
89,273
Supplemental lease information is summarized below (in thousands):
ROU assets obtained in exchange for new operating lease
obligations
ROU assets obtained in exchange for new finance lease
obligations
Cash paid for amounts included in the measurement of lease
liabilities
Operating leases - operating cash flows
Finance leases - operating cash flows
Finance leases - financing cash flows
Year Ended December 31,
2023
2022
2021
$
12,772 $
22,582 $
13,426
234
3,273
2,664
17,195
165
3,032
19,227
312
4,622
20,048
419
3,950
Lease term and discount rate were as follows:
Weighted-average remaining lease term (in years)
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
December 31, 2023
December 31, 2022
December 31, 2021
5.7
1.6
5.4 %
4.1 %
5.9
2.1
5.2 %
3.9 %
6.2
2.0
5.2 %
4.6 %
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Table of Contents
Maturities of lease liabilities under non-cancelable leases as of December 31, 2023 are summarized as follows (in
thousands):
2024
2025
2026
2027
2028
Thereafter
Total undiscounted lease payments
Less: imputed interest
Total lease liabilities
Note 13: Commitments and Contingencies
Litigation and Regulatory
Finance Leases
Operating Leases
Total
$
2,013 $
17,941 $
783
84
42
—
—
2,922
(104)
2,818 $
17,010
16,173
13,502
11,423
19,417
95,466
(13,999)
81,467 $
$
19,954
17,793
16,257
13,544
11,423
19,417
98,388
(14,103)
84,285
The Company is involved in disputes, legal actions, regulatory investigations, inquiries, and other actions from time to
time in the ordinary course of business. The Company, along with others in its industry, is routinely subject to legal actions
asserting various claims, including those based on the Fair Debt Collection Practices Act (“FDCPA”), the Fair Credit Reporting
Act (“FCRA”), the Telephone Consumer Protection Act (“TCPA”), comparable state statutes, state and federal unfair
competition statutes, and common law causes of action. The violations of law investigated or alleged in these actions often
include claims that the Company lacks specified licenses to conduct its business, attempts to collect debts on which the statute
of limitations has run, has made inaccurate or unsupported assertions of fact in support of its collection actions and/or has acted
improperly in connection with its efforts to contact consumers. Such litigation and regulatory actions could involve potential
compensatory or punitive damage claims, fines, sanctions, injunctive relief, or changes in business practices. Many continue on
for some length of time and involve substantial investigation, litigation, negotiation, and other expense and effort before a result
is achieved, and during the process the Company often cannot determine the substance or timing of any eventual outcome.
In September 2015, the Company entered into a consent order (the “2015 Consent Order”) with the Consumer Financial
Protection Bureau (the “CFPB”) in which the Company settled allegations arising from its practices between 2011 and 2015. In
October 2020, the Company entered into a stipulated judgment (“Stipulated Judgment”) with the CFPB to resolve a subsequent
lawsuit related to the 2015 Consent Order. Additionally, we are subject to ancillary state Attorney General investigations related
to similar debt collection practices. We have entered into settlement agreements with the Attorneys General of various U.S.
states in connection with our debt collection and litigation practices. The Company has discussed with additional state attorneys
general potential resolution of these investigations, which could include penalties, restitution, and/or the adoption of new
operational requirements. If the Company is unable to resolve its differences with the state attorneys general, it is possible that
they may file claims against the Company.
In certain legal proceedings, the Company may have recourse to insurance or third-party contractual indemnities to cover
all or portions of its litigation expenses, judgments, or settlements. The Company records loss contingencies in its financial
statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be
reasonably estimated with no best estimate in the range, the Company records the minimum estimated liability. The Company
continuously assesses the potential liability related to its pending litigation and regulatory matters and revises its estimates when
additional information becomes available. The Company’s legal costs are recorded to expense as incurred.
As of December 31, 2023, the Company has no material reserves for legal matters.
Purchase Commitments
In the normal course of business, the Company enters into forward flow purchase agreements. A forward flow purchase
agreement is a commitment to purchase receivables over a duration that is typically three to twelve months, but can be longer,
generally with a specifically defined volume range, frequency, and pricing. Typically, these forward flow contracts have
provisions that allow for early termination or price re-negotiation should the underlying quality of the portfolio deteriorate over
time or if any particular month’s delivery is materially different than the original portfolio used to price the forward flow
contract. Certain of these forward flow purchase agreements may also have termination clauses, whereby the agreements can be
canceled by either party upon providing a certain specified amount of notice.
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As of December 31, 2023, the Company had entered into forward flow purchase agreements for the purchase of
nonperforming loans with an estimated minimum aggregate purchase price of approximately $384.6 million. The Company
expects actual purchases under these forward flow purchase agreements to be significantly greater than the estimated minimum
aggregate purchase price.
Employee Savings and Retirement Plan
The Company has a 401(k) Savings Plan in the U.S. that qualifies as deferred salary arrangements under Section 401(k) of
the Internal Revenue Code. Under the 401(k) Plan, matching contributions are based upon the amount of the employees’
contributions subject to certain limitations. The Company also has defined contribution plans for eligible employees in other
countries. The Company recognized expense of approximately $6.8 million, $2.8 million, and $2.8 million for the years ended
December 31, 2023, 2022, and 2021, respectively, in salaries and employee benefits in its consolidated statements of operations.
Guarantees
Encore’s Certificate of Incorporation and indemnification agreements between the Company and its officers and directors
provide that the Company will indemnify and hold harmless its officers and directors for certain events or occurrences arising
as a result of the officer or director serving in such capacity. The Company has also agreed to indemnify certain third parties
under certain circumstances pursuant to the terms of certain underwriting agreements, registration rights agreements, credit
facilities, portfolio purchase and sale agreements, and other agreements entered into by the Company in the ordinary course of
business. The maximum potential amount of future payments the Company could be required to make under these
indemnification agreements is unlimited. The Company believes the estimated fair value of these indemnification agreements is
minimal and, as of December 31, 2023, has no liabilities recorded for these agreements.
Note 14: Segment and Geographic Information
The Company conducts business through several operating segments. The Company’s Chief Operating Decision Maker
relies on internal management reporting processes that provide segment revenue, segment operating income, and segment asset
information in order to make financial decisions and allocate resources. The Company determined its operating segments meet
the aggregation criteria, and therefore, it has one reportable segment, portfolio purchasing and recovery, based on similarities
among the operating units including economic characteristics, the nature of the services, the nature of the production process,
customer types for their services, the methods used to provide their services and the nature of the regulatory environment.
The following tables present information about geographic areas in which the Company operates (in thousands):
Total revenues:
United States
Europe
United Kingdom
Other European countries(1)
Total Europe
Other geographies(1)
Total
________________________
Year Ended December 31,
2023
2022
2021
$
792,443 $
995,470 $
1,115,572
295,566
134,301
429,867
272,962
129,737
402,699
344,214
142,316
486,530
370
1,222,680 $
178
1,398,347 $
12,397
1,614,499
$
(1)
None of these countries comprise greater than 10% of the Company's consolidated revenues.
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Table of Contents
Long-lived assets(1):
United States
International
United Kingdom
India
Other foreign countries(2)
Total
________________________
December 31,
2023
December 31,
2022
$
70,361 $
82,695
62,309
23,108
15,200
100,617
$
170,978 $
58,034
25,337
17,908
101,279
183,974
(1) Long-lived assets consist of property and equipment, net and right of use assets.
(2) None of these countries comprise greater than 10% of the Company's consolidated long-lived assets.
Note 15: Goodwill and Identifiable Intangible Assets
The Company’s goodwill is tested for impairment at the reporting unit level annually and in interim periods if certain
events occur that indicate that the fair value of a reporting unit may be below its carrying value. Determining the number of
reporting units and the fair value of a reporting unit requires the Company to make judgments and involves the use of
significant estimates and assumptions. The Company performs its annual goodwill impairment assessment as of the first day of
the fourth quarter.
As of December 31, 2023, the Company had two reporting units, MCM and Cabot, that carried goodwill. When
performing its annual goodwill impairment assessment during the fourth quarter of 2023, the Company chose to proceed
directly to performing quantitative tests for both reporting units. The annual goodwill impairment analysis resulted in an
impairment charge for the Cabot reporting unit of $238.2 million. The fair value of the MCM reporting unit substantially
exceeded its carrying value on the assessment date, as a result, there was no impairment of goodwill for the MCM reporting
unit during the year ended December 31, 2023.
The Company applies various valuation techniques to estimate the fair value of each reporting unit when performing a
quantitative impairment test, including the income approach and the market approach. Under the income approach, the
Company uses a discounted cash flow method, or DCF, to estimate the fair value of a reporting unit. In applying the DCF
method, an identified level of future cash flow is estimated. The cash flow projections are based on five-year financial forecasts
developed by management that include purchasing volume, collections forecasts, capital spending trends, and cost assumptions
to support anticipated growth, which are updated annually and reviewed by management. The value of the net cash flows
beyond the fifth year (the “Terminal Year”) is determined by applying a market multiple to the projected estimated remaining
collections. Annual estimated cash flows and a Terminal Year value are then discounted to their present value at an appropriate
discount rate to obtain an indication of fair value. The Company bases the discount rate on the weighted-average cost of capital
adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit’s
ability to execute on the projected cash flows. Because DCF analyses are based on management’s long-term financial
projections and require significant estimates and judgments, the market approach is conducted in addition to the income
approach in estimating the fair value of a reporting unit. Under the market approach, the Company uses both a Guideline Public
Company Method and Guideline Merged & Acquired Company method to estimate the fair value of equity and the business
enterprise value of a reporting unit. The Guideline Public Company approach uses financial metrics from similar public traded
companies to estimate fair value. The Guideline Merged and Acquired Company method calculates fair value by analyzing the
actual prices paid for recent mergers and acquisitions in the industry. The fair value estimate of the Company’s reporting units
was derived primarily from the income approach, and to a lesser extent, the market approach as described above. The Company
believes that the current methodology used in determining the fair value at its reporting units represent its best estimates. In
addition, the Company compares the aggregate fair value of the reporting units to its overall market capitalization.
The Company’s prior annual goodwill impairment test resulted in a sufficient cushion for the Cabot reporting unit.
Additionally, the Company did not observe significant indicators of goodwill impairment triggers during its subsequent interim
qualitative assessments. During the fourth quarter of 2023, management completed its annual update of the five-year financial
forecast at the Cabot reporting unit, resulting in a revised forecast due to a combination of (1) the continuation of lower than
expected levels of outstanding unsecured consumer borrowings and charge-off rates in Europe, (2) the continuation of portfolio
pricing that management believes does not fully reflect the higher cost of capital, and (3) management allocating capital to the
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higher-return US market instead of the Cabot markets, which all impact the expected purchasing volume and related collections
forecasts at the Cabot reporting unit. The decline in the fair value of the Cabot reporting unit below its carrying value resulted
from changes in expected future cash flows as compared to the Company’s prior year financial forecasts, decline in market
multiples, as well as an increase in the cost of capital.
In conjunction with the quantitative goodwill impairment test, the Company tested the recoverability of long-lived assets
and other assets of the Cabot reporting unit and concluded that the intangible assets carried at Cabot’s debt servicing business
were fully impaired. As a result, the Company recorded an impairment charge of its intangible assets of $18.7 million during
the fourth quarter of 2023. The Company recorded an impairment charge of $4.1 million for its definite-lived intangible assets
during the year ended December 31, 2022.
Management continues to evaluate and monitor all key factors impacting the carrying value of the Company’s recorded
goodwill and intangible assets. Adverse changes in the Company’s actual or expected operating results, market capitalization,
business climate, economic factors or other negative events that may be outside the control of management could result in a
material non-cash impairment charge in the future.
The Company’s goodwill is attributable to the MCM and Cabot reporting units included in its portfolio purchasing and
recovery segment. The following table summarizes the activity in the Company’s goodwill balance (in thousands):
MCM
Cabot
Total
Balance as of December 31, 2020
Effect of foreign currency translation
Balance as of December 31, 2021
Effect of foreign currency translation
Balance as of December 31, 2022
Goodwill impairment
Effect of foreign currency translation
Balance as of December 31, 2023
$
148,936 $
758,026 $
—
148,936
—
148,936
—
—
(9,167)
748,859
(76,581)
672,278
23,461
$
148,936 $
457,539 $
906,962
(9,167)
897,795
(76,581)
821,214
23,461
606,475
(238,200)
(238,200)
There was no accumulated goodwill impairment loss as of December 31, 2022 and 2021. The accumulated goodwill
impairment loss at the Cabot reporting unit was $238.2 million as of December 31, 2023.
The Company’s acquired intangible assets are summarized as follows (in thousands):
As of December 31, 2023
As of December 31, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Customer relationships
Trade name and other
Total intangible assets
$
$
— $
918
918 $
— $
(870)
(870) $
— $
48
48 $
45,498 $
909
46,407 $
(23,507) $
(788)
(24,295) $
21,991
121
22,112
The weighted-average useful lives of intangible assets at the time of acquisition were as follows (in years):
Customer relationships
Trade name and other
Weighted-Average
Useful Lives
10
7
The amortization expense for intangible assets subject to amortization was $3.6 million, $6.3 million, and $7.9 million
during the years ended December 31, 2023, 2022, and 2021, respectively. Estimated future amortization expense related to
finite-lived intangible assets as of December 31, 2023 was negligible.
F-36