UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20202021 or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________.
COMMISSION FILE NUMBER: 000-26489
ENCORE CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
| | | | | |
Delaware | 48-1090909 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
350 Camino De La Reina, Suite 100
San Diego, California 92108
(Address of principal executive offices, including zip code)
(877) 445 - 4581
(Registrant’s telephone number, including area code)
(Not Applicable)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.01 Par Value Per Share | | ECPG | | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☒ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | | | | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| | | | | | | | |
Class | | Outstanding at May 4, 2020April 28, 2021 |
Common Stock, $0.01 par value | | 31,234,42031,009,845 shares |
ENCORE CAPITAL GROUP, INC.
INDEX TO FORM 10-Q
PART I – FINANCIAL INFORMATION
Item 1— Consolidated Financial Statements (Unaudited)
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
Assets | Assets | | | | Assets | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 188,199 | | | $ | 192,335 | | Cash and cash equivalents | $ | 184,598 | | | $ | 189,184 | |
Investment in receivable portfolios, net | Investment in receivable portfolios, net | 3,166,018 | | | 3,283,984 | | Investment in receivable portfolios, net | 3,225,678 | | | 3,291,918 | |
Deferred court costs, net | — | | | 100,172 | | |
Property and equipment, net | Property and equipment, net | 119,417 | | | 120,051 | | Property and equipment, net | 124,586 | | | 127,297 | |
Other assets | Other assets | 302,019 | | | 329,223 | | Other assets | 323,137 | | | 349,162 | |
Goodwill | Goodwill | 839,301 | | | 884,185 | | Goodwill | 912,170 | | | 906,962 | |
Total assets | Total assets | $ | 4,614,954 | | | $ | 4,909,950 | | Total assets | $ | 4,770,169 | | | $ | 4,864,523 | |
Liabilities and Equity | Liabilities and Equity | | | | Liabilities and Equity | | | |
Liabilities: | Liabilities: | | Liabilities: | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | $ | 168,481 | | | $ | 223,911 | | Accounts payable and accrued liabilities | $ | 189,529 | | | $ | 215,920 | |
Borrowings | Borrowings | 3,404,427 | | | 3,513,197 | | Borrowings | 3,151,928 | | | 3,281,634 | |
Other liabilities | Other liabilities | 136,235 | | | 147,436 | | Other liabilities | 149,928 | | | 146,893 | |
Total liabilities | Total liabilities | 3,709,143 | | | 3,884,544 | | Total liabilities | 3,491,385 | | | 3,644,447 | |
Commitments and Contingencies (Note 11) | | | | | | |
Commitments and Contingencies (Note 10) | | Commitments and Contingencies (Note 10) | 0 | | 0 |
Equity: | Equity: | | Equity: | |
Convertible preferred stock, $0.01 par value, 5,000 shares authorized, 0 shares issued and outstanding | Convertible preferred stock, $0.01 par value, 5,000 shares authorized, 0 shares issued and outstanding | — | | | — | | Convertible preferred stock, $0.01 par value, 5,000 shares authorized, 0 shares issued and outstanding | 0 | | | 0 | |
Common stock, $0.01 par value, 75,000 shares authorized, 31,234 and 31,097 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively | 312 | | | 311 | | |
Common stock, $0.01 par value, 75,000 shares authorized, 31,010 and 31,345 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | | Common stock, $0.01 par value, 75,000 shares authorized, 31,010 and 31,345 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | 310 | | | 313 | |
Additional paid-in capital | Additional paid-in capital | 222,403 | | | 222,590 | | Additional paid-in capital | 167,655 | | | 230,440 | |
Accumulated earnings | Accumulated earnings | 833,366 | | | 888,058 | | Accumulated earnings | 1,172,756 | | | 1,055,668 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (153,355) | | | (88,766) | | Accumulated other comprehensive loss | (64,541) | | | (68,813) | |
Total Encore Capital Group, Inc. stockholders’ equity | Total Encore Capital Group, Inc. stockholders’ equity | 902,726 | | | 1,022,193 | | Total Encore Capital Group, Inc. stockholders’ equity | 1,276,180 | | | 1,217,608 | |
Noncontrolling interest | Noncontrolling interest | 3,085 | | | 3,213 | | Noncontrolling interest | 2,604 | | | 2,468 | |
Total equity | Total equity | 905,811 | | | 1,025,406 | | Total equity | 1,278,784 | | | 1,220,076 | |
Total liabilities and equity | Total liabilities and equity | $ | 4,614,954 | | | $ | 4,909,950 | | Total liabilities and equity | $ | 4,770,169 | | | $ | 4,864,523 | |
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 9:8: Variable Interest Entities” for additional information on the Company’s VIEs.
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
Assets | Assets | | | | Assets | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 90 | | | $ | 34 | | Cash and cash equivalents | $ | 559 | | | $ | 2,223 | |
Investment in receivable portfolios, net | Investment in receivable portfolios, net | 478,613 | | | 539,596 | | Investment in receivable portfolios, net | 536,177 | | | 553,621 | |
Other assets | Other assets | 4,645 | | | 4,759 | | Other assets | 4,687 | | | 5,127 | |
Liabilities | Liabilities | | Liabilities | |
Borrowings | Borrowings | $ | 435,099 | | | $ | 464,092 | | Borrowings | 482,377 | | | 478,131 | |
Other Liabilities | | Other Liabilities | 11 | | | 37 | |
See accompanying notes to consolidated financial statements
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | | 2021 | | 2020 | |
Revenues | Revenues | | | | | Revenues | | | | |
Revenue from receivable portfolios | Revenue from receivable portfolios | | $ | 357,365 | | | $ | 311,158 | | Revenue from receivable portfolios | $ | 338,018 | | | $ | 357,365 | | |
Changes in expected current and future recoveries | Changes in expected current and future recoveries | | (98,661) | | | — | | Changes in expected current and future recoveries | 44,537 | | | (98,661) | | |
Servicing revenue | Servicing revenue | | 28,680 | | | 34,023 | | Servicing revenue | 32,516 | | | 28,680 | | |
Other revenues | Other revenues | | 1,697 | | | 529 | | Other revenues | 1,766 | | | 1,697 | | |
Total revenues | Total revenues | | 289,081 | | | 345,710 | | Total revenues | 416,837 | | | 289,081 | | |
Allowance reversals on receivable portfolios, net | | | | | 1,367 | | |
Total revenues, adjusted by net allowances | | | | | 347,077 | | |
Operating expenses | Operating expenses | | | | Operating expenses | | | | |
Salaries and employee benefits | Salaries and employee benefits | | 93,098 | | | 91,834 | | Salaries and employee benefits | 96,456 | | | 93,098 | | |
Cost of legal collections | Cost of legal collections | | 66,279 | | | 49,027 | | Cost of legal collections | 67,142 | | | 66,279 | | |
General and administrative expenses | | General and administrative expenses | 32,148 | | | 31,877 | | |
Other operating expenses | Other operating expenses | | 27,164 | | | 29,614 | | Other operating expenses | 28,441 | | | 27,164 | | |
Collection agency commissions | Collection agency commissions | | 13,176 | | | 16,002 | | Collection agency commissions | 12,824 | | | 13,176 | | |
General and administrative expenses | | 31,877 | | | 39,547 | | |
Depreciation and amortization | Depreciation and amortization | | 10,285 | | | 9,995 | | Depreciation and amortization | 11,512 | | | 10,285 | | |
| Total operating expenses | Total operating expenses | | 241,879 | | | 236,019 | | Total operating expenses | 248,523 | | | 241,879 | | |
Income from operations | Income from operations | | | 47,202 | | | 111,058 | | Income from operations | 168,314 | | | 47,202 | | |
Other (expense) income | Other (expense) income | | | | | Other (expense) income | | | | |
Interest expense | Interest expense | | (54,662) | | | (54,967) | | Interest expense | (46,526) | | | (54,662) | | |
Other income (expense) | | 1,439 | | | (2,976) | | |
| Other (expense) income | | Other (expense) income | (55) | | | 1,439 | | |
Total other expense | Total other expense | | (53,223) | | | (57,943) | | Total other expense | (46,581) | | | (53,223) | | |
(Loss) income before income taxes | | | (6,021) | | | 53,115 | | |
Income (loss) before income taxes | | Income (loss) before income taxes | 121,733 | | | (6,021) | | |
Provision for income taxes | Provision for income taxes | | | (4,558) | | | (3,673) | | Provision for income taxes | (26,968) | | | (4,558) | | |
Net (loss) income | | | (10,579) | | | 49,442 | | |
Net loss (income) attributable to noncontrolling interest | | | 125 | | | (188) | | |
Net (loss) income attributable to Encore Capital Group, Inc. stockholders | | | $ | (10,454) | | | $ | 49,254 | | |
Net income (loss) | | Net income (loss) | 94,765 | | | (10,579) | | |
Net (income) loss attributable to noncontrolling interest | | Net (income) loss attributable to noncontrolling interest | (135) | | | 125 | | |
Net income (loss) attributable to Encore Capital Group, Inc. stockholders | | Net income (loss) attributable to Encore Capital Group, Inc. stockholders | $ | 94,630 | | | $ | (10,454) | | |
| (Loss) earnings per share attributable to Encore Capital Group, Inc.: | | | |
Earnings (loss) per share attributable to Encore Capital Group, Inc.: | | Earnings (loss) per share attributable to Encore Capital Group, Inc.: | | |
Basic | Basic | | $ | (0.33) | | | $ | 1.58 | | Basic | $ | 3.01 | | | $ | (0.33) | | |
Diluted | Diluted | | $ | (0.33) | | | $ | 1.57 | | Diluted | $ | 2.97 | | | $ | (0.33) | | |
| Weighted average shares outstanding: | Weighted average shares outstanding: | | | Weighted average shares outstanding: | | |
Basic | Basic | | 31,308 | | | 31,201 | | Basic | 31,469 | | | 31,308 | | |
Diluted | Diluted | | 31,308 | | | 31,359 | | Diluted | 31,832 | | | 31,308 | | |
See accompanying notes to consolidated financial statements
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Comprehensive Income (Loss) Income
(Unaudited, In Thousands)
| | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
Net (loss) income | | | | | | $ | (10,579) | | | $ | 49,442 | |
Other comprehensive (loss) income, net of tax: | | | | | | | |
Change in unrealized gains/losses on derivative instruments: | | | | | | | |
Unrealized loss on derivative instruments | | | | | | (5,051) | | | (2,202) | |
Income tax effect | | | | | 1,497 | | | 172 | |
Unrealized loss on derivative instruments, net of tax | | | | | | (3,554) | | | (2,030) | |
Change in foreign currency translation: | | | | | | | |
Unrealized (loss) gain on foreign currency translation | | | | | | (61,038) | | | 7,580 | |
Other comprehensive (loss) income, net of tax | | | | | | (64,592) | | | 5,550 | |
Comprehensive (loss) income | | | | | | (75,171) | | | 54,992 | |
Comprehensive loss (income) attributable to noncontrolling interest: | | | | | | | |
Net loss (income) attributable to noncontrolling interest | | | | | | 125 | | | (188) | |
Unrealized loss (gain) on foreign currency translation | | | | | | 3 | | | (427) | |
Comprehensive loss (income) attributable to noncontrolling interest | | | | | | 128 | | | (615) | |
Comprehensive (loss) income attributable to Encore Capital Group, Inc. stockholders | | | | | | $ | (75,043) | | | $ | 54,377 | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
Net income (loss) | $ | 94,765 | | | $ | (10,579) | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Change in unrealized gain (loss) on derivative instruments: | | | | | | | |
Unrealized gain (loss) on derivative instruments | 1,761 | | | (5,051) | | | | | |
Income tax effect | (378) | | | 1,497 | | | | | |
Unrealized gain (loss) on derivative instruments, net of tax | 1,383 | | | (3,554) | | | | | |
Change in foreign currency translation: | | | | | | | |
Unrealized gain (loss) on foreign currency translation | 2,890 | | | (61,038) | | | | | |
| | | | | | | |
| | | | | | | |
Other comprehensive income (loss), net of tax: | 4,273 | | | (64,592) | | | | | |
Comprehensive income (loss) | 99,038 | | | (75,171) | | | | | |
Comprehensive (income) loss attributable to noncontrolling interest: | | | | | | | |
Net (income) loss attributable to noncontrolling interest | (135) | | | 125 | | | | | |
Unrealized (gain) loss on foreign currency translation | (1) | | | 3 | | | | | |
Comprehensive (income) loss attributable to noncontrolling interest: | (136) | | | 128 | | | | | |
Comprehensive income (loss) attributable to Encore Capital Group, Inc. stockholders | $ | 98,902 | | | $ | (75,043) | | | | | |
See accompanying notes to consolidated financial statements
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Equity
(Unaudited, In Thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interest | | Total Equity |
| Shares | | Par | | | | | | | | | | |
Balance as of December 31, 2019 | 31,097 | | | $ | 311 | | | $ | 222,590 | | | $ | 888,058 | | | $ | (88,766) | | | $ | 3,213 | | | $ | 1,025,406 | |
Cumulative adjustment | — | | | — | | | — | | | (44,238) | | | — | | | — | | | (44,238) | |
Balance as of January 1, 2020 | 31,097 | | | 311 | | | 222,590 | | | 843,820 | | | (88,766) | | | 3,213 | | | 981,168 | |
Net loss | — | | | — | | | — | | | (10,454) | | | — | | | (125) | | | (10,579) | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (64,589) | | | (3) | | | (64,592) | |
Issuance of share-based awards, net of shares withheld for employee taxes | 137 | | | 1 | | | (4,714) | | | — | | | — | | | — | | | (4,713) | |
Stock-based compensation | — | | | — | | | 4,527 | | | — | | | — | | | — | | | 4,527 | |
| | | | | | | | | | | | | |
Balance as of March 31, 2020 | 31,234 | | | $ | 312 | | | $ | 222,403 | | | $ | 833,366 | | | $ | (153,355) | | | $ | 3,085 | | | $ | 905,811 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Noncontrolling Interest | | Total Equity |
Shares | | Par | |
Balance as of December 31, 2020 | 31,345 | | | $ | 313 | | | $ | 230,440 | | | $ | 1,055,668 | | | $ | (68,813) | | | $ | 2,468 | | | $ | 1,220,076 | |
Cumulative adjustment | — | | | — | | | (40,372) | | | 22,458 | | | — | | | — | | | (17,914) | |
Net income | — | | | — | | | — | | | 94,630 | | | — | | | 135 | | | 94,765 | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 4,272 | | | 1 | | | 4,273 | |
| | | | | | | | | | | | | |
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes | 183 | | | 2 | | | (5,433) | | | — | | | — | | | — | | | (5,431) | |
Repurchase of common stock | (518) | | | (5) | | | (20,385) | | | — | | | — | | | — | | | (20,390) | |
Stock-based compensation | — | | | — | | | 3,405 | | | — | | | — | | | — | | | 3,405 | |
Balance as of March 31, 2021 | 31,010 | | | $ | 310 | | | $ | 167,655 | | | $ | 1,172,756 | | | $ | (64,541) | | | $ | 2,604 | | | $ | 1,278,784 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive (Loss) Income | | Noncontrolling Interest | | Total Equity |
| Shares | | Par | | | | | | | | | | |
Balance as of December 31, 2018 | 30,884 | | | $ | 309 | | | $ | 208,498 | | | $ | 720,189 | | | $ | (110,987) | | | $ | 1,679 | | | $ | 819,688 | |
Net income | — | | | — | | | — | | | 49,254 | | | — | | | 188 | | | 49,442 | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 5,123 | | | 427 | | | 5,550 | |
Issuance of share-based awards, net of shares withheld for employee taxes | 83 | | | 1 | | | (1,950) | | | — | | | — | | | — | | | (1,949) | |
Stock-based compensation | — | | | — | | | 1,826 | | | — | | | — | | | — | | | 1,826 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance as of March 31, 2019 | 30,967 | | | $ | 310 | | | $ | 208,374 | | | $ | 769,443 | | | $ | (105,864) | | | $ | 2,294 | | | $ | 874,557 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
| Common Stock | | Additional Paid-In Capital | | Accumulated Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interest | | Total Equity |
Shares | | Par | |
Balance as of December 31, 2019 | 31,097 | | | $ | 311 | | | $ | 222,590 | | | $ | 888,058 | | | $ | (88,766) | | | $ | 3,213 | | | $ | 1,025,406 | |
Cumulative adjustment | — | | | — | | | — | | | (44,238) | | | — | | | — | | | (44,238) | |
Net loss | — | | | — | | | — | | | (10,454) | | | — | | | (125) | | | (10,579) | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (64,589) | | | (3) | | | (64,592) | |
Issuance of share-based awards, net of shares withheld for employee taxes | 137 | | | 1 | | | (4,714) | | | — | | | — | | | — | | | (4,713) | |
Stock-based compensation | — | | | — | | | 4,527 | | | — | | | — | | | — | | | 4,527 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance as of March 31, 2020 | 31,234 | | | $ | 312 | | | $ | 222,403 | | | $ | 833,366 | | | $ | (153,355) | | | $ | 3,085 | | | $ | 905,811 | |
See accompanying notes to consolidated financial statements
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
| | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Operating activities: | Operating activities: | | | | Operating activities: | | | |
Net (loss) income | | $ | (10,579) | | | $ | 49,442 | | |
Net income (loss) | | Net income (loss) | $ | 94,765 | | | $ | (10,579) | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 10,285 | | | 9,995 | | Depreciation and amortization | 11,512 | | | 10,285 | |
| Other non-cash interest expense, net | Other non-cash interest expense, net | 5,909 | | | 6,629 | | Other non-cash interest expense, net | 4,749 | | | 5,909 | |
Stock-based compensation expense | Stock-based compensation expense | 4,527 | | | 1,826 | | Stock-based compensation expense | 3,405 | | | 4,527 | |
Deferred income taxes | Deferred income taxes | (12,030) | | | 19,682 | | Deferred income taxes | (3,302) | | | (12,030) | |
| Changes in expected current and future recoveries | Changes in expected current and future recoveries | 98,661 | | | — | | Changes in expected current and future recoveries | (44,537) | | | 98,661 | |
Allowance reversals on receivable portfolios, net | | — | | | (1,367) | | |
Other, net | Other, net | | 2,161 | | | 4,081 | | Other, net | 4,931 | | | 2,161 | |
Changes in operating assets and liabilities | Changes in operating assets and liabilities | | Changes in operating assets and liabilities | |
Deferred court costs and other assets | 3,377 | | | 18,725 | | |
Other assets | | Other assets | (3,816) | | | 3,377 | |
Prepaid income tax and income taxes payable | Prepaid income tax and income taxes payable | 14,970 | | | (30,247) | | Prepaid income tax and income taxes payable | 28,627 | | | 14,970 | |
Accounts payable, accrued liabilities and other liabilities | Accounts payable, accrued liabilities and other liabilities | (46,476) | | | (67,775) | | Accounts payable, accrued liabilities and other liabilities | (27,215) | | | (46,476) | |
Net cash provided by operating activities | Net cash provided by operating activities | | 70,805 | | | 10,991 | | Net cash provided by operating activities | 69,119 | | | 70,805 | |
Investing activities: | Investing activities: | | Investing activities: | | | |
Purchases of receivable portfolios, net of put-backs | Purchases of receivable portfolios, net of put-backs | (209,045) | | | (258,635) | | Purchases of receivable portfolios, net of put-backs | (167,025) | | | (209,045) | |
Collections applied to investment in receivable portfolios, net | Collections applied to investment in receivable portfolios, net | 169,914 | | | 202,695 | | Collections applied to investment in receivable portfolios, net | 268,443 | | | 169,914 | |
Purchases of property and equipment | (7,538) | | | (10,227) | | |
| Other, net | Other, net | 3,414 | | | (3,347) | | Other, net | (6,151) | | | (4,124) | |
Net cash used in investing activities | | (43,255) | | | (69,514) | | |
Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | 95,267 | | | (43,255) | |
Financing activities: | Financing activities: | | Financing activities: | | | |
| Proceeds from credit facilities | Proceeds from credit facilities | 171,880 | | | 196,263 | | Proceeds from credit facilities | 273,293 | | | 171,880 | |
Repayment of credit facilities | Repayment of credit facilities | (167,221) | | | (119,854) | | Repayment of credit facilities | (235,399) | | | (167,221) | |
| Repayment of senior secured notes | Repayment of senior secured notes | (16,250) | | | — | | Repayment of senior secured notes | (9,770) | | | (16,250) | |
| Repayment of convertible senior notes | | Repayment of convertible senior notes | (161,000) | | | 0 | |
Repurchase of common stock | | Repurchase of common stock | (20,390) | | | 0 | |
Other, net | Other, net | (10,171) | | | (4,862) | | Other, net | (6,844) | | | (10,171) | |
Net cash (used in) provided by financing activities | | (21,762) | | | 71,547 | | |
Net cash used in financing activities | | Net cash used in financing activities | (160,110) | | | (21,762) | |
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | | 5,788 | | | 13,024 | | Net increase in cash and cash equivalents | 4,276 | | | 5,788 | |
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (9,924) | | | (3,346) | | Effect of exchange rate changes on cash and cash equivalents | (8,862) | | | (9,924) | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 192,335 | | | 157,418 | | Cash and cash equivalents, beginning of period | 189,184 | | | 192,335 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 188,199 | | | $ | 167,096 | | Cash and cash equivalents, end of period | $ | 184,598 | | | $ | 188,199 | |
| Supplemental disclosure of cash information: | Supplemental disclosure of cash information: | | Supplemental disclosure of cash information: | |
Cash paid for interest | Cash paid for interest | $ | 60,495 | | | $ | 62,135 | | Cash paid for interest | $ | 37,258 | | | $ | 60,495 | |
Cash paid for taxes, net of refunds | Cash paid for taxes, net of refunds | 766 | | | 15,003 | | Cash paid for taxes, net of refunds | 813 | | | 766 | |
See accompanying notes to consolidated financial statements
ENCORE CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies
Encore Capital Group, Inc. (“Encore”), through its subsidiaries (collectively with Encore, the “Company”), is an international specialty finance company providing debt recovery solutions and other related services for consumers across a broad range of financial assets. The Company purchases portfolios of defaulted consumer receivables at deep discounts to face value and manages them by working with individuals as they repay their obligations and work toward financial recovery. Defaulted receivables are consumers’ unpaid financial commitmentsobligations 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.
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 a market leader in the United Kingdom and Ireland. 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.” In August 2019, the Company completed the sale of Baycorp, which represented the Company’s investments and operations in Australia and New Zealand and was a component of LAAP.
COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States and around the world. The COVID-19 outbreak and resulting containment measures implemented by governments around the world, as well as increased business uncertainty, are having an adversehave impacted the Company. The circumstances around the COVID-19 pandemic continue to rapidly evolve and will continue to impact on the Company’s ability to collectbusiness and are expected to delay a portionits estimation of its near-term expected cash collections on purchased receivable portfolios. The resulting impact on expected recoveries has impacted our financial results. We may also incur increased costs or other adverse changesin future periods. The Company will continue to our business, but such potential impacts are unknown at this time.closely monitor the COVID-19 situation and update its assumptions accordingly.
Financial Statement Preparation and Presentation
The accompanying interim consolidated financial statements have been prepared by the Company, without audit, in accordance with the instructions to the Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnotes necessary for a fair presentation of its consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).
In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the Company’s consolidated financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company’s financial statements and the accompanying notes. The inputs into the judgments and estimates consider the economic implications of the COVID-19 pandemic on the Company’s critical and significant accounting estimates. Actual results could materially differ from those estimates.
Basis of Consolidation
The consolidated financial statements have been prepared in conformity with GAAPaccounting 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 for which it is the primary beneficiary. The primary beneficiary has both (1)(a) the power to direct the activities of the VIE that most significantly affect the entity’s economic performance, and (2)(b) either the obligation to absorb losses or the right to receive benefits. Refer to “Note 9:8: 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.
Reclassifications
Certain immaterial reclassifications have been made to the consolidated financial statements to conform to the current year’s presentation.
Recently Adopted Accounting PronouncementGuidance
On January 1, 2020,2021, the Company adopted the new accounting standardAccounting Standards Update (“ASU”) No. 2020-06, Debt — Debt with Conversion and Other Options (“Subtopic 470-20”) and Derivatives and Hedging — Contracts in Entity’s Own Equity (“Subtopic 815-40”): Accounting for FinancialConvertible Instruments - Credit Lossesand Contracts in an Entity’s Own Equity (“CECL”ASU 2020-06”). CECL introducesThe Company adopted ASU 2020-06 using the modified-retrospective approach, by recording a new impairment approachnet cumulative-effect adjustment to equity of approximately $17.9 million.
The ASU simplifies the accounting for credit loss recognitionconvertible instruments by removing certain models in Subtopic 470-20 and revises the guidance in Subtopic 815-40 to simplify the accounting for contracts in an entity’s own equity. The ASU also amends the guidance to improve the consistency of earnings per share calculations, which requires the if-converted method be used for convertible instruments.
Under ASU 2020-06, the Company’s convertible and exchangeable notes are no longer bifurcated to a debt component and an equity component, instead, they are carried as a single liability which reflects the principal amount of the convertible and exchangeable notes. The interest expense recognized on the convertible and exchangeable notes are based on current expected lifetime lossescoupon rates, rather than incurred losses. CECL applies to all financial assets carried at amortized costs, including the Company’s investment in receivable portfolios, which are defined as purchased credit deteriorated (“PCD”) financial assets under CECL. The adoption of CECL representshigher effective interest rates. As a significant change from the previous U.S. GAAP guidance relating to purchased credit impaired assets and resulted in changes to the Company’s accounting for its investment in receivable portfolios and the related income from the receivable portfolios.
As part of the adoption of CECL,result, the Company changed its accounting methodology for its court costs spent in its legal collection channelrecognizes lower interest expense after the adoption. Additionally, effective January 1, 2020. Previously,2021, the Company capitalized its upfront court costs spentuses if-converted method in its consolidated financial statements (“Deferred Court Costs”) and provided a reserve for those costs that it believed would ultimately be uncollectible. Effective January 1, 2020, the Company expenses allcalculating dilutive effect of its court costs as incurred. All expected cash flows, including all the expected collections from the legal channel, are included in the measurement of the negative allowance, or investment in receivable portfolios, at a discounted value. Upon transition, an adjustment was made to retainedconvertible and exchangeable notes for earnings to reflect the net change from an undiscounted to discounted value prior to writing-off uncollectible receivables and establishing a balance for discounted value of future recoveries of amounts expected to be collected.per share.
The Company has not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous accounting guidance. The following table summarizes the cumulative effects of adopting the CECLnew guidance on the Company’s consolidated statements of financial condition at January 1, 20202021 (in thousands):
| | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2019 | | Adjustment | | Opening Balance as of January 1, 2020 |
Assets | | | | | |
Investment in receivable portfolios, net | $ | 3,283,984 | | | $ | 44,166 | | | $ | 3,328,150 | |
Deferred court costs, net | 100,172 | | | (100,172) | | | — | |
Liabilities | | | | | | | |
Other liabilities (for deferred tax liabilities) | 147,436 | | | (11,768) | | | 135,668 | |
Equity | | | | | |
Accumulated earnings | 888,058 | | | (44,238) | | | 843,820 | |
Recent Accounting Pronouncements Not Yet Effective | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2020 | | Adjustment | | Opening Balance as of January 1, 2021 |
Liabilities | | | | | |
Convertible notes and exchangeable notes | $ | 583,500 | | | $ | 0 | | | $ | 583,500 | |
Debt discount | (19,364) | | | 19,364 | | | 0 | |
Other liabilities (for deferred tax liabilities) | 146,893 | | | (1,450) | | | 145,443 | |
Equity | | | | | |
Additional paid-in capital | 230,440 | | | (40,372) | | | 190,068 | |
Accumulated earnings | 1,055,668 | | | 22,458 | | | 1,078,126 | |
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU is effective as of March 12, 2020 through December 31, 2022. We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional
guidance on an ongoing basis. The ASU is currently not expected to have a material impact on our consolidated financial statements.
With the exception of the updated standard discussed above, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2020,2021, as compared to the recent accounting pronouncements described in our Annual Report, that have significance, or potential significance, to the Company’s consolidated financial statements.
Accounting Policy Update
As a result of the adoption of CECL, the Company revised its following accounting policies effective January 1, 2020:
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 PCD assets under CECL. Under the PCD accounting model, the purchased assets are grossed-up to their face value with an offsetting allowance and noncredit discount allocated to the individual receivables as the unit of account is at the individual loan level. Since each loan is deeply delinquent and deemed uncollectible at the individual loan level, the Company applies its charge-off policy and fully writes-off the amortized costs (i.e., face value net of noncredit discount) of the individual receivables immediately after purchasing the portfolio. The Company then records a negative allowance that represents the present value of all expected future recoveries for pools of receivables that share similar risk characteristics using a discounted cash flow approach, which ultimately equals the amount paid for a portfolio purchase and presented as “Investment in receivable portfolios, net” in the Company’s 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. The Company continues to evaluate the reasonable economic life of a pool in each reporting period. 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) the current period variances between actual cash collected and expected cash recoveries and (b) the present value change of expected future recoveries.
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 zero basis portfolios (“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. See “Note 5: Investment in Receivable Portfolios, Net” for further discussion of investment in receivable portfolios.
Deferred Court Costs
The Company pursues legal collections using a network of attorneys that specialize in collection matters and through its internal legal channel. The Company generally pursues collections through legal means only when it believes a consumer has sufficient assets to repay their indebtedness but has, to date, been unwilling to pay. In order to pursue legal collections, the Company is required to pay certain upfront costs to the applicable courts that are recoverable from the consumer. Effective January 1, 2020, the Company expenses all of its court costs as incurred and no longer capitalizes such costs as Deferred Court Costs. All expected cash flows, including all the expected collections from the legal channel, are included in the measurement of the negative allowance, or investment in receivable portfolios, at a discounted value.
Note 2: Earnings (Loss) Earnings Per Share
Basic (loss) earnings per share is calculated by dividing net earnings attributable to Encore by the weighted average number of shares of common stock outstanding during the period. Diluted (loss) earnings per share is calculated based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.period. Dilutive potential common shares include outstanding stock options, restricted stock,non-vested share 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 are 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. Since all of the Company’s 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. The Company did not have any dilutive effect from its convertible and exchangeable notes during the three months ended March 31, 2021 or 2020.
In computing the diluted net loss per share for the three months ended March 31, 2020, dilutive potential common shares arewere excluded from the diluted loss per share calculation because of their anti-dilutive effect.
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. During the three months ended March 31, 2021, the Company repurchased 517,860 shares of our common stock for approximately $20.4 million, or $39.37 per share. The Company’s practice is to retire the shares repurchased.
A reconciliation of shares used in calculating (loss) earnings per basic and diluted shares follows (in thousands, except per share amounts):
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | | 2021 | | 2020 | |
Net (loss) income attributable to Encore Capital Group, Inc. stockholders | | $ | (10,454) | | | $ | 49,254 | | |
Net income (loss) attributable to Encore Capital Group, Inc. stockholders | | Net income (loss) attributable to Encore Capital Group, Inc. stockholders | $ | 94,630 | | | $ | (10,454) | | |
| Total weighted-average basic shares outstanding | Total weighted-average basic shares outstanding | | 31,308 | | | 31,201 | | Total weighted-average basic shares outstanding | 31,469 | | | 31,308 | | |
Dilutive effect of stock-based awards | Dilutive effect of stock-based awards | | — | | | 158 | | Dilutive effect of stock-based awards | 363 | | | 0 | | |
| Total weighted-average dilutive shares outstanding | Total weighted-average dilutive shares outstanding | | 31,308 | | | 31,359 | | Total weighted-average dilutive shares outstanding | 31,832 | | | 31,308 | | |
| Basic (loss) earnings per share | | $ | (0.33) | | | $ | 1.58 | | |
Diluted (loss) earnings per share | | $ | (0.33) | | | $ | 1.57 | | |
Basic earnings (loss) per share | | Basic earnings (loss) per share | $ | 3.01 | | | $ | (0.33) | | |
Diluted earnings (loss) per share | | Diluted earnings (loss) per share | $ | 2.97 | | | $ | (0.33) | | |
Anti-dilutive employee stock options outstanding were approximately 13,000 and 217,000 forduring the three months ended March 31, 20202021 and 2019, respectively.2020.
Note 3: Fair Value Measurements
Fair value is defined as the price that would be received upon sale of an asset or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., the “exit price”). The Company uses a fair value hierarchy that prioritizes the inputs used in valuation techniques to measure fair value into three broad levels. The following is a brief description of each level:
•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3: Unobservable inputs, including inputs that reflect the reporting entity’s own assumptions.
Financial Instruments Required To Be Carried At Fair Value
Financial assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| | | Fair Value Measurements as of March 31, 2020 | | | Fair Value Measurements as of March 31, 2021 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | Assets | | | | | | | | Assets | | | | | | | |
| Interest rate cap contracts | Interest rate cap contracts | $ | — | | | $ | 2,150 | | | $ | — | | | $ | 2,150 | | Interest rate cap contracts | $ | 0 | | | $ | 854 | | | $ | 0 | | | $ | 854 | |
Liabilities | Liabilities | | Liabilities | |
Foreign currency exchange contracts | — | | | (2,177) | | | — | | | (2,177) | | |
Interest rate swap agreements | Interest rate swap agreements | — | | | (14,735) | | | — | | | (14,735) | | Interest rate swap agreements | 0 | | | (3,847) | | | 0 | | | (3,847) | |
Cross-currency swap agreements | | Cross-currency swap agreements | 0 | | | (5,340) | | | 0 | | | (5,340) | |
Contingent consideration | Contingent consideration | — | | | — | | | (27) | | | (27) | | Contingent consideration | 0 | | | 0 | | | (2,927) | | | (2,927) | |
| | | Fair Value Measurements as of December 31, 2019 | | | Fair Value Measurements as of December 31, 2020 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | Assets | | | | | | | | Assets | | | | | | | |
Foreign currency exchange contracts | $ | — | | | $ | 1,473 | | | $ | — | | | $ | 1,473 | | |
Cross-currency swap agreements | | Cross-currency swap agreements | $ | 0 | | | $ | 11,578 | | | $ | 0 | | | $ | 11,578 | |
Interest rate cap contracts | Interest rate cap contracts | — | | | 2,460 | | | — | | | 2,460 | | Interest rate cap contracts | 0 | | | 659 | | | 0 | | | 659 | |
Liabilities | Liabilities | | Liabilities | |
| Interest rate swap agreements | Interest rate swap agreements | — | | | (9,116) | | | — | | | (9,116) | | Interest rate swap agreements | 0 | | | (5,232) | | | 0 | | | (5,232) | |
Contingent consideration | Contingent consideration | — | | | — | | | (66) | | | (66) | | Contingent consideration | 0 | | | 0 | | | (2,957) | | | (2,957) | |
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.
The following table provides a roll-forward of the fair value of contingent consideration for the three months ended March 31, 20202021 and year ended December 31, 20192020 (in thousands):
| | | | | |
| Amount |
Balance as of December 31, 2018 | $ | 6,198 | |
Change in fair value of contingent consideration | (2,300) | |
Payment of contingent consideration | (3,686) | |
Effect of foreign currency translation | (146) | |
Balance as of December 31, 2019 | $ | 66 | |
Issuance of contingent consideration in connection with acquisition | 2,848 | |
Payment of contingent consideration | (88) | |
Effect of foreign currency translation | 131 | |
Balance as of December 31, 2020 | 2,957 | |
| |
| |
Payment of contingent consideration | (35)(56) | |
Effect of foreign currency translation | (4)26 | |
Balance as of March 31, 20202021 | $ | 272,927 | |
Non-Recurring Fair Value Measurement:
Certain assets are measured at fair value on a nonrecurring basis. These assets include real estate-owned assets classified as held for sale at the lower of their carrying value or fair value less cost to sell. The fair value of the assets held for sale and estimated selling expenses were determined at the time of initial recognition using Level 3 measurements. The fair value estimate of thethese assets held for sale was approximately $42.9$40.1 million and $46.7$42.2 million as of March 31, 20202021 and December 31, 2019,2020, 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 March 31, 20202021 and December 31, 20192020 (in thousands):
| | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2021 | | December 31, 2020 |
| | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Financial Assets | Financial Assets | | | | | | | | Financial Assets | | | | | | | |
Investment in receivable portfolios, net | Investment in receivable portfolios, net | $ | 3,166,018 | | | $ | 3,547,965 | | | $ | 3,283,984 | | | $ | 3,464,050 | | Investment in receivable portfolios, net | $ | 3,225,678 | | | $ | 3,615,300 | | | $ | 3,291,918 | | | $ | 3,705,672 | |
Deferred court costs | — | | | — | | | 100,172 | | | 100,172 | | |
Financial Liabilities | Financial Liabilities | | Financial Liabilities | |
Encore convertible notes and exchangeable notes(1) | 645,591 | | | 567,691 | | | 642,547 | | | 693,708 | | |
Cabot senior secured notes(2) | 1,077,548 | | | 996,060 | | | 1,127,435 | | | 1,170,945 | | |
Convertible notes and exchangeable notes(1) | | Convertible notes and exchangeable notes(1) | 422,500 | | | 481,126 | | | 564,136 | | | 622,081 | |
Senior secured notes(2) | | Senior secured notes(2) | 1,613,557 | | | 1,683,277 | | | 1,642,058 | | | 1,684,729 | |
_______________________
(1)Carrying amount representsPrior to January 1, 2021, under the portion ofprevious accounting standard, the convertible and exchangeable notes classifiedincluded a debt discount. The carrying amount as debt, while estimated fair value pertains toof December 31, 2020 represented the faceprincipal amount of the notes.notes, net of the debt discount.
(2)Carrying amount represents historical cost, adjusted for any related debt discount or debt premium.
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 itsthe 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.
Deferred Court Costs:Borrowings:
Effective January 1, 2020,The Company’s convertible notes, exchangeable notes and senior secured notes are carried at historical cost, adjusted for the Company no longer carries Deferred Court Costs as a result of its change in accounting policy.debt discount. The fair value estimate for Deferred Court Costs as of December 31, 2019 involvedthe convertible and exchangeable notes incorporates quoted market prices using Level 3 inputs as there was little observable market data available and management was required to use significant judgment in its estimates.
Borrowings:
The majority of the Company’s borrowings are carried at historical amounts, adjusted for additional borrowings less principal repayments, which approximate fair value. These borrowings include Encore’s senior secured notes and borrowings under its revolving credit and term loan facilities and Cabot’s borrowings under its revolving credit facility. The carrying value of the Company’s revolving credit and term loan facilities approximates fair value due to the short-term nature of the interest rate periods.2 inputs. The fair value of the Company’s senior secured notes wasis 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 agreement approximates fair value due to the short-term nature of the interest rate period. The Company’s borrowings also include private placement notes, a securitisation senior facility and finance lease liabilities for which the carrying value approximates respective fair value.
Encore’s convertible notes and exchangeable notes and Cabot’s senior secured notes are carried at historical cost, adjusted for the debt discount. The fair value estimate for these convertible and exchangeable notes incorporates quoted market prices using Level 2 inputs.
Note 4: Derivatives and Hedging Instruments
The Company may periodically enter into derivative financial instruments to manage risks related to interest rates and foreign currency. Certain of the Company’s derivative financial instruments qualify for hedge accounting treatment under the authoritative guidance for derivatives and hedging.
The following table summarizes the fair value of derivative instruments as included in the Company’s consolidated statements of financial condition (in thousands):
| | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2021 | | December 31, 2020 |
| Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | | | | Derivatives designated as hedging instruments: | | | | | | | |
Interest rate cap contracts | Interest rate cap contracts | Other assets | | $ | 2,150 | | | Other assets | | $ | 2,460 | | Interest rate cap contracts | Other assets | | $ | 854 | | | Other assets | | $ | 659 | |
Foreign currency exchange contracts | Other liabilities | | (134) | | | Other assets | | 443 | | |
| Interest rate swap agreements | Interest rate swap agreements | Other liabilities | | (14,735) | | | Other liabilities | | (9,116) | | Interest rate swap agreements | Other liabilities | | (3,847) | | | Other liabilities | | (5,232) | |
Derivatives not designated as hedging instruments: | | |
Foreign currency exchange contracts | Other liabilities | | (2,043) | | | Other assets | | 1,030 | | |
Cross-currency swap agreements | | Cross-currency swap agreements | Other liabilities | | (5,340) | | | Other assets | | 11,578 | |
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Derivatives Designated as Hedging Instruments
The Company has operations in foreign countries which expose the Company to foreign currency exchange rate fluctuations due to transactions denominated in foreign currencies. To mitigate a portion of this risk, the Company entersmay enter into derivative financial instruments, principally foreign currency forward contracts with financial counterparties. The Company adjusts the level and use of derivatives as soon as practicable after learning that an exposure has changed and reviews all exposures and derivative positions on an ongoing basis.
Certain of the Company’s foreign currency forward contracts are designated as cash flow hedging instruments and qualify for hedge accounting treatment. Gains and losses arising from such contracts are recorded as a component of accumulated other comprehensive income (“OCI”) as gains and losses on derivative instruments, net of income taxes. The hedging gains and losses in OCI are subsequently reclassified into earnings in the same period in which the underlying transactions affect the Company’s earnings. If all or a portion of the forecasted transaction is cancelled, the accumulated gains or losses in OCI would be reclassified into earnings.
As of March 31, 2020, the total notional amount of the forward contracts that were designated as cash flow hedging instruments was $6.3 million. The Company estimates that approximately $0.1 million of net derivative loss included in OCI will be reclassified into earnings within the next 12 months. NaN gains or losses were reclassified from OCI into earnings as a result of forecasted transactions that failed to occur during the three months ended March 31, 2020 and 2019.
The Company may periodically enter into interest rate swap agreements 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. In accordance with authoritative guidance relating to derivatives and hedging transactions, theThe Company designates its interest rate swap instruments as cash flow hedges. Previously, the Company held 4 interest rate swap agreements that hedged the risk of USD-LIBOR interest rate fluctuations for the Encore revolving credit facility and term loan facility. As part of the financing transactions completed in September 2020, the Company settled 2 of the interest rate swap agreements. As of March 31, 2020,2021, there were 42 interest rate swap agreements outstanding with a total notional amount of $327.9$191.3 million. The Company expects to reclassify approximately $6.4 million of net derivative loss from OCI into earnings relating to interest rate swaps within the next 12 months.
In connection with the financing transactions discussed above, the Company entered into cross-currency swap agreements, which are used to manage foreign currency exchange risk by converting fixed-rate Euro-denominated borrowings including periodic interest payments and the payment of principal at maturity to fixed-rate USD debt and are accounted for as cash flow hedges. As of March 31, 2021, there were 4 cross-currency swap agreements outstanding with a total notional amount of €350.0 million (approximately $410.5 million based on an exchange rate of $1.00 to €0.85, the exchange rate as of March 31, 2021). The Company expects to reclassify approximately $4.6 million of net derivative loss from OCI into earnings relating to cross-currency swaps within the next 12 months.
Previously, the Company held 2 interest rate cap contracts that matured in 2021 (the “2018 Caps”) whichthat hedged the risk of GBP-LIBOR interest rate fluctuations for the Cabot Securitisation Senior Facility interest payments of Cabot Securitisation’s senior facility agreement. As part of the amended and restated senior facility agreement as described in “Note 8: Borrowings”,payments. In February 2020, the Company settled the 2018 Caps and ceased the hedge relationship, which resulted in the reclassification of the associated other comprehensive loss balance to interest expense for approximately $2.5 million during the three months ended March 31,first quarter of 2020.
As of March 31, 2020,2021, the Company held 2 interest rate cap contracts with a notional amount of approximately $876.4$951.5 million that are used to manage its risk related to interest rate fluctuations on the Company’s variable interest rate bearing debt. The interest rate cap hedging the fluctuations in three-month EURIBOR for the Cabot 2024 Floating Rate Notesfloating rate debt (“2019 Cap”) has a notional amount of €400.0 million (approximately $435.1 million)$469.1 million based on an exchange rate of $1.00 to €0.85, the exchange rate as of March 31, 2021) and matures in 2024. The interest rate cap hedging the fluctuations in sterling overnight index average (“SONIA”) for the Cabot Securitisation UK Ltd senior facility agreementbearing debt (“2020 Cap”) has a notional amount of £350.0 million (approximately $441.3 million)$482.4 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of March 31, 2021) and matures in 2023. The 2019 Cap is structured as a series of European call options (“Caplets”) such that if exercised, the Company will receive a payment equal to 3-months EURIBOR on a notional amount equal to the hedged notional amount net of a fixed strike price. The 2020 Cap is also structured as a series of Caplets such that if exercised, the Company will receive a payment equal to SONIA on a notional amount equal to the hedged notional amount net of a fixed strike price. Each interest rate reset date, the Company will elect to exercise the Caplet or let it expire. The potential cash flows from each Caplet are expected to offset any variability in the cash flows of the interest payments to the extent SONIA or EURIBOR exceeds the strike price of the Caplets. The Company expects the hedge relationships to be highly effective and designates the 2019 Cap and 2020 Cap as cash flow hedge instruments. The Company expects to reclassify approximately $0.6 million of net derivative loss from OCI into earnings relating to interest rate caps within the next 12 months.
The following table summarizestables summarize the effects of derivatives in cash flow hedging relationships designated as hedging instruments in the Company’s consolidated financial statements of operations (in thousands):
| Derivatives Designated as Hedging Instruments | Derivatives Designated as Hedging Instruments | | Gain (Loss) Recognized in OCI | | | Location of Gain (Loss) Reclassified from OCI into Income (Loss) | | Gain (Loss) Reclassified from OCI into Income (Loss) | | Derivatives Designated as Hedging Instruments | | Gain (Loss) Recognized in OCI | | Location of Gain (Loss) Reclassified from OCI into Income (Loss) | | Gain (Loss) Reclassified from OCI into Income (Loss) |
| | Three Months Ended March 31, | | | | | Three Months Ended March 31, | | Derivatives Designated as Hedging Instruments | | Three Months Ended March 31, | | Location of Gain (Loss) Reclassified from OCI into Income (Loss) | | Three Months Ended March 31, |
| | 2020 | | 2019 | | | | 2020 | | 2019 | Derivatives Designated as Hedging Instruments | | 2021 | | 2020 | | Location of Gain (Loss) Reclassified from OCI into Income (Loss) | | |
Foreign currency exchange contracts | Foreign currency exchange contracts | | $ | (389) | | | $ | 935 | | | Salaries and employee benefits | | $ | 127 | | | $ | (95) | | Foreign currency exchange contracts | | $ | | $ | (389) | | | Salaries and employee benefits | | $ | 127 | |
Foreign currency exchange contracts | Foreign currency exchange contracts | | (45) | | | (78) | | | General and administrative expenses | | 17 | | | (84) | | Foreign currency exchange contracts | | 0 | | (45) | | | General and administrative expenses | | 17 | |
Interest rate swap agreements | Interest rate swap agreements | | (6,707) | | | (2,086) | | | Interest expense | | (1,088) | | | (420) | | Interest rate swap agreements | | (11) | | | (6,707) | | | Interest expense | | (2,271) | | | (1,088) | |
Interest rate cap contracts | Interest rate cap contracts | | (1,396) | | | (1,572) | | | Interest expense | | (2,542) | | | — | | Interest rate cap contracts | | 195 | | | (1,396) | | | Interest expense | | (107) | | | (2,542) | |
Cross-currency swap agreements | | Cross-currency swap agreements | | (18,329) | | | 0 | | | Interest expense / Other (expense) income | | (17,528) | | | 0 | |
Derivatives Not Designated as Hedging Instruments
The Company enters into currency exchange forward contracts to reduce the effects of currency exchange rate fluctuations between the British Pound and Euro. These derivative contracts generally mature within one to three months and are not designated as hedge instruments for accounting purposes. The Company continues to monitor the level of exposure of the foreign currency exchange risk and may enter into additional short-term forward contracts on an ongoing basis. The gains or losses on these derivative contracts are recognized in other income or expense based on the changes in fair value. As of March 31, 2021, the Company had 0 outstanding currency exchange forward contracts that were not designated as cash flow hedging instruments.
The following table summarizes the effects of derivatives in cash flow hedging relationships not designated as hedging instruments in the Company’s consolidated statements of operations (in thousands):
| | | | | | | Amount of Gain Recognized in Income (Loss) | | | Amount of Gain (Loss) Recognized in Income (Loss) | |
| | | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
Derivatives Not Designated as Hedging Instruments | Derivatives Not Designated as Hedging Instruments | | Location of Gain Recognized in Income (Loss) on Derivative | | | 2020 | | 2019 | Derivatives Not Designated as Hedging Instruments | | Location of Gain (Loss) Recognized in Income on Derivative | | 2021 | | 2020 | |
Foreign currency exchange contracts | Foreign currency exchange contracts | | Other income (expense) | | | | $ | 1,943 | | | $ | — | | Foreign currency exchange contracts | | Other (expense) income | | $ | 0 | | | $ | 1,943 | | |
Note 5: Investment in Receivable Portfolios, Net
As discussed in “Note 1: Ownership, DescriptionThe Company’s purchased portfolios of Business,loans are grossed-up to their face value with an offsetting allowance and Summarynoncredit discount allocated to the individual receivables as the unit of Significant Accounting Policies”, effective January 1, 2020,account is at the individual loan level. Since each loan is deeply delinquent and deemed uncollectible at the individual loan level, the Company accountsapplies 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 its investmentpools 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, as PCD assets under CECLnet” 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 changed its accounting policy for reimbursable court costs. Asthe expected future cash flows at the time of purchase.
Receivable portfolio purchases are aggregated into pools based on similar risk characteristics. Examples of risk characteristics include financial asset type, collateral type, size, interest rate, date of origination, term, and geographic location. The Company’s static pools are typically grouped into credit card, purchased consumer bankruptcy, and mortgage portfolios. The Company further groups these static pools by geographic location. Once a result,pool is established, the Company wrote-offportfolios will remain in the previous Deferred Court Costs balance that represented an undiscounted value of recoverable historic spend as a resultdesignated pool unless the underlying risk characteristics change. The purchase EIR of a loss-rate methodology, and established a discounted valuepool will not change over the life of the pool even if expected future recoveries of these reimbursable court costs, whichcash flows change.
Revenue is included inrecognized for each static pool over the beginning balanceeconomic life of the investmentpool. Revenue primarily includes two components: (1) accretion of the discount on the negative allowance due to the passage of time, and (2) changes in receivable portfolios.
The table below illustrates the Company’s transition approach for its investment in receivable portfolios as of January 1, 2020 (in thousands):
| | | | | |
| Amount |
Investment in receivable portfolios prior to transition | $ | 3,283,984 | |
Initial transitioned deferred court costs | 44,166 | |
| 3,328,150 | |
Allowance for credit losses | 79,028,043 | |
Amortized cost | 82,356,193 | |
Noncredit discount | 132,533,142 | |
Face value | 214,889,335 | |
Write-off of amortized cost | (82,356,193) | |
Write-off of noncredit discount | (132,533,142) | |
Negative allowance | 3,328,150 | |
Initial negative allowance from transition | $ | 3,328,150 | |
expected
cash flows, which includes (a) the current period variances between actual cash collected and expected cash recoveries and (b) the present value change of expected future recoveries.
The Company measures 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 new laws or regulations, new interpretations of existing laws or regulations, and macroeconomic conditions.
The table below provides the detail on the establishment of negative allowance for expected recoveries of portfolios purchased during the three months ended March 31, 2020periods presented (in thousands):
| | | | | |
| Three Months Ended March 31, 2020 |
Purchase price | $ | 214,113 | |
Allowance for credit losses | 521,194 | |
Amortized cost | 735,307 | |
Noncredit discount | 967,715 | |
Face value | 1,703,022 | |
Write-off of amortized cost | (735,307) | |
Write-off of noncredit discount | (967,715) | |
Negative allowance | 214,113 | |
Negative allowance for expected recoveries - current period purchases | $ | 214,113 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 |
Purchase price | $ | 170,178 | | | $ | 214,113 | |
Allowance for credit losses | 374,575 | | | 521,194 | |
Amortized cost | 544,753 | | | 735,307 | |
Noncredit discount | 784,112 | | | 967,715 | |
Face value | 1,328,865 | | | 1,703,022 | |
Write-off of amortized cost | (544,753) | | | (735,307) | |
Write-off of noncredit discount | (784,112) | | | (967,715) | |
Negative allowance | 170,178 | | | 214,113 | |
Negative allowance for expected recoveries - current period purchases | $ | 170,178 | | | $ | 214,113 | |
The following table summarizesummarizes the changes in the balance of the investment in receivable portfolios during the periods presented (in thousands):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2020 | | 2019 | | 2021 | | 2020 | |
Balance, beginning of period | Balance, beginning of period | $ | 3,328,150 | | | $ | 3,137,893 | | Balance, beginning of period | $ | 3,291,918 | | $ | 3,328,150 | |
Purchases of receivable portfolios | Purchases of receivable portfolios | 214,113 | | | 262,335 | | Purchases of receivable portfolios | 170,178 | | 214,113 | |
| Put-backs and Recalls | Put-backs and Recalls | (5,068) | | | (3,700) | | Put-backs and Recalls | (3,153) | | (5,068) | |
Transfers to assets held for sale | (1,531) | | | (3,589) | | |
Disposals and transfers to assets held for sale | | Disposals and transfers to assets held for sale | (1,665) | | (1,531) | |
Cash collections | Cash collections | (527,279) | | | (513,853) | | Cash collections | (606,461) | | (527,279) | |
Revenue from receivable portfolios | Revenue from receivable portfolios | 357,365 | | | 311,158 | | Revenue from receivable portfolios | 338,018 | | 357,365 | |
Changes to expected current period recoveries | 10,315 | | | — | | |
Changes to expected future period recoveries | (108,976) | | | — | | |
Portfolios allowance reversal, net | — | | | 1,367 | | |
Changes in expected current period recoveries | | Changes in expected current period recoveries | 91,401 | | 10,315 | |
Changes in expected future period recoveries | | Changes in expected future period recoveries | (46,864) | | (108,976) | |
Foreign currency adjustments | Foreign currency adjustments | (101,071) | | | 19,976 | | Foreign currency adjustments | (7,694) | | (101,071) | |
Balance, end of period | Balance, end of period | $ | 3,166,018 | | | $ | 3,211,587 | | Balance, end of period | $ | 3,225,678 | | $ | 3,166,018 | |
Revenue as a percentage of collections | 67.8 | % | | 60.6 | % | |
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Changes in expected current period recoveries represent over and under-performance in the reporting period. Collections during the three months ended March 31, 2021 significantly outperformed the projected cash flows. The Company believes the collection over-performance was a result of its sustained improvements in portfolio collections driven by change in consumer behavior during the COVID-19 pandemic and our liquidation improvement initiatives. The over-performance was also driven by higher collections as compared to the reduced near-term expected recoveries as a result of adjustments made to the projected cash flow forecast during 2020 associated with the COVID-19 pandemic.
While the Company now has additional information with respect to the impact on collections of the COVID-19 pandemic, the future outlook remains uncertain, and will continue to evolve depending on future developments, including the duration and spread of the pandemic and related actions taken by governments. When reassessing the future forecasts of expected lifetime recoveries during three months ended March 31, 2021, management considered historical and current collection performance, as well as the uncertainty in economic forecasts in the geographies in which we operate, and believes that while some of the collection over-performance resulted in increased total expected recoveries for certain pool groups, the majority of the over-performance was a shift forward in timing rather than an increase in total estimated remaining collections. Additionally, the macroeconomic driven consumer distress has improved; although it is still present and will likely impact the Company’s collections performance in the near future. As a result of a combination of the above, the Company has updated its forecast, resulting in a net reduction of total estimated remaining collections which in turn, when discounted to present value, resulted in a provision for credit loss adjustment of approximately $46.9 million during the three months ended March 31, 2021. During the three months ended March 31, 2020, the Company reassessed its future forecasts of expected recoveries of receivable portfolios based on its best estimate of the potential impact arising from the COVID-19 pandemic. The updated forecasts changed the timing of future recoveries by reducing the forecasted cash flowsrecorded approximately $109.0 million in 2020. The majority of the shortfall in near-term cash flows is expected to be recovered in 2021 and most of the rest of the shortfall is expected to be recovered in subsequent periods. As a result, the change in the total amount of estimated remaining collections (“ERC”) was negligible. The delay in expected future cash flows, when discounted to present-value, resulted in a provision for credit loss adjustment due to significant uncertainty of approximately $109.0 million during the three months ended March 31, 2020.COVID-19 pandemic at that time. The circumstances around this pandemic are evolvingcontinue to rapidly evolve, and will continue to impact the Company’s business and its estimation of expected recoveries in future periods. The Company will continue to closely monitor the COVID-19 situation closely and update its assumptions accordingly.
Accretable yield represented the amount of revenue on purchased receivable portfolios the Company expects to recognize over the remaining life of its existing portfolios. The following table summarizes the change in accretable yield under the previous accounting guidance during the three months ended March 31, 2019 (in thousands):
| | | | | |
| Three Months Ended March 31, |
| 2019 |
Balance as of beginning of period | $ | 4,026,206 | |
Revenue from receivable portfolios | (311,158) | |
Allowance reversals on receivable portfolios, net | | (1,367) | |
Additions on existing portfolios, net | | 38,313 | |
Additions for current purchases | 285,637 | |
Effect of foreign currency translation | 26,461 | |
Balance as of end of period | $ | 4,064,092 | |
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The following table summarizes the change in the valuation allowance for investment in receivable portfolios as accounted for under the previous accounting guidance during the three months ended March 31, 2019 (in thousands):
| | | | | |
| Three Months Ended March 31, |
| 2019 |
Balance as of beginning of period | $ | 60,631 | |
Provision for portfolio allowances | 2,626 | |
Reversal of prior allowances | (3,993) | |
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Effect of foreign currency translation | 164 | |
Balance as of end of period | $ | 59,428 | |
Note 6: Deferred Court Costs, Net
As discussed in “Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies”, effective January 1, 2020 and as part of the adoption of CECL, the Company changed its method of accounting for court costs spent in its legal collection channel. The Company now expenses all of its court costs as incurred and includes all expected recoveries, including the recoveries from the legal channel, in the measurement of the investment in receivable portfolios at a discounted value. As a result, the Company no longer carries Deferred Court Costs.
Net deferred court costs under the previous accounting method consisted of the following as of the date presented (in thousands):
| | | | | |
| December 31, 2019 |
Court costs advanced | $ | 891,207 | |
Court costs recovered | (369,043) | |
Court costs reserve | (421,992) | |
Deferred court costs, net | $ | 100,172 | |
A roll-forward of the Company’s court cost reserve as accounted for under the previous accounting method is as follows (in thousands):
| | | | | | | |
| Three Months Ended March 31, 2019 | | |
Balance at beginning of period | $ | (396,460) | | | |
Provision for court costs | (15,713) | | | |
Charge-offs | 13,779 | | | |
Effect of foreign currency translation | (1,597) | | | |
Balance at end of period | $ | (399,991) | | | |
Note 7: Other Assets
Other assets consist of the following (in thousands):
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
Operating lease right-of-use asset | $ | 74,113 | | | $ | 75,254 | | |
Operating lease right-of-use assets | | Operating lease right-of-use assets | $ | 69,426 | | | $ | 72,164 | |
Identifiable intangible assets, net | Identifiable intangible assets, net | 46,371 | | | 51,371 | | Identifiable intangible assets, net | 42,991 | | | 45,012 | |
Assets held for sale | 42,947 | | | 46,717 | | |
Real estate owned | | Real estate owned | 40,059 | | | 42,173 | |
Deferred tax assets | Deferred tax assets | 26,291 | | | 24,134 | | Deferred tax assets | 33,834 | | | 33,202 | |
Service fee receivables | Service fee receivables | 22,786 | | | 27,705 | | Service fee receivables | 30,718 | | | 26,539 | |
Prepaid expenses | Prepaid expenses | 22,191 | | | 22,272 | | Prepaid expenses | 26,497 | | | 26,717 | |
Equity method investments | | Equity method investments | 17,302 | | | 10,155 | |
Other financial receivables | Other financial receivables | 16,213 | | | 17,308 | | Other financial receivables | 12,036 | | | 12,238 | |
Income tax deposits | | Income tax deposits | 8,272 | | | 35,853 | |
Other | Other | 51,107 | | | 64,462 | | Other | 42,002 | | | 45,109 | |
Total | Total | $ | 302,019 | | | $ | 329,223 | | Total | $ | 323,137 | | | $ | 349,162 | |
Note 8:7: Borrowings
The Company is in compliance in all material respects with all covenants under its financing arrangements as of March 31, 2020.2021. The components of the Company’s consolidated borrowings were as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Encore revolving credit facility | $ | 528,000 | | | $ | 492,000 | |
Encore term loan facility | 167,855 | | | 171,677 | |
Encore senior secured notes | 292,500 | | | 308,750 | |
Encore convertible notes and exchangeable notes | 672,855 | | | 672,855 | |
Less: debt discount | (27,264) | | | (30,308) | |
Cabot senior secured notes | 1,078,965 | | | 1,129,039 | |
Less: debt discount | (1,417) | | | (1,604) | |
Cabot senior revolving credit facility | 241,170 | | | 285,749 | |
Cabot securitisation senior facilities | 435,099 | | | 464,092 | |
Other | 47,924 | | | 54,151 | |
Finance lease liabilities | 8,642 | | | 8,121 | |
| 3,444,329 | | | 3,554,522 | |
Less: debt issuance costs, net of amortization | (39,902) | | | (41,325) | |
Total | $ | 3,404,427 | | | $ | 3,513,197 | |
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| March 31, 2021 | | December 31, 2020 |
Global senior secured revolving credit facility | $ | 520,505 | | | $ | 481,007 | |
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Encore private placement notes | 136,780 | | | 146,550 | |
Senior secured notes | 1,622,407 | | | 1,651,619 | |
Convertible notes and exchangeable notes | 422,500 | | | 583,500 | |
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Cabot securitisation senior facility | 482,377 | | | 478,131 | |
Other | 24,921 | | | 24,398 | |
Finance lease liabilities | 9,953 | | | 8,288 | |
| 3,219,443 | | | 3,373,493 | |
Less: debt discount and issuance costs, net of amortization | (67,515) | | | (91,859) | |
Total | $ | 3,151,928 | | | $ | 3,281,634 | |
Encore is the parent of the restricted group for the Global Senior Facility, the Senior Secured Notes and the 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 and Term Loan Facility
TheIn September 2020, the Company hasentered into a multi-currency senior secured revolving credit facility (the “Revolving Credit Facility”) and term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”) pursuant to a Third Amended and Restated Credit Agreement dated December 20, 2016agreement (as amended and restated, the “Restated Credit Agreement”“Global Senior Facility”). TheIn previous periods, the Company referred to this facility as the Cabot Credit Facility. As of March 31, 2021, the Global Senior Facility provided for a total commitment for the Revolving Credit Facility is $884.2committed facility of $1,050.0 million that matures in December 2021. The Term Loan Facility matures in December 2021September 2024 and included the principal amortizes $15.3 million in 2020 with the remaining principal due in 2021.
Provisions of the Restated Credit Agreement as of March 31, 2020 include, but are not limited to:following key provisions:
•A Revolving Credit Facility with interestInterest at a floating rate equal to, at the Company’s option, either: (1) reserve adjusted London Interbank Offered Rate (“LIBOR”),LIBOR (or EURIBOR for any loan drawn in euro) plus a spread that ranges from 250 to 300 basis points depending on the cash flow leverage ratio of Encore and its restricted subsidiaries as defined in the Restated Credit Agreement; or (2) alternate base rate, plus a spread that ranges from 150 to 200 basis points, depending on the cash flow leverage ratio of Encore and its restricted subsidiaries. “Alternate base rate,” as defined in the Restated Credit Agreement, means the highest of (a) the2.50% per annum, rate which the administrative agent publicly announces from time to time as its prime lending rate, (b) the federal funds effective rate from time to time, plus 0.5% per annum, (c) reserved adjustedwith a LIBOR determined on a daily basis for a one month interest period, plus 1.0% per annum and (d) zero;(or EURIBOR) floor of 0.75%;
•A Term Loanrestrictive covenant that limits the LTV Ratio (defined in the Global Senior Facility) to 0.75 in the event that the Global Senior Facility with interest at a floating rate equal to, at the Company’s option, either: (1) reserve adjusted LIBOR, plus a spread that ranges from 250 to 300 basis points, depending on the cash flow leverage ratio of Encore and its restricted subsidiaries; or (2) alternate base rate, plus a spread that ranges from 150 to 200 basis points, depending on the cash flow leverage ratio of Encore and its restricted subsidiaries;is more than 20% utilized;
•A borrowing base underrestrictive covenant that limits the Revolving Credit Facility equalSSRCF LTV Ratio (defined in the Global Senior Facility) to 35% of all eligible non-bankruptcy estimated remaining collections plus 55% of eligible estimated remaining collections for consumer receivables subject to bankruptcy;0.275;
•A maximum cash flow leverage ratio permittedrestrictive covenant that requires the Company to maintain a Fixed Charge Coverage Ratio (as defined in the Global Senior Facility) of 3.00:1.00;at least 2.0;
•A maximum cash flow first-lien leverage ratio of 2.00:1.00;
•A minimum interest coverage ratio of 1.75:1.00;
•The allowance of indebtedness in the form of senior secured notes not to exceed $350.0 million;
•The allowance of additional unsecured or subordinated indebtedness not to exceed $1.1 billion, including junior lien indebtedness not to exceed $400.0 million;
•RestrictionsAdditional restrictions and covenants which limit, among other things, the payment of dividends and the incurrence of additional indebtedness and liens, among other limitations;liens; and
•RepurchasesStandard events of updefault which, upon occurrence, may permit the lenders to $150.0 millionterminate 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 Encore’s common stock and permitted indebtedness after July 9, 2015, subject to compliance with certain covenants and available borrowing capacity;
•A pre-approved acquisition limit of $225.0 million per fiscal year;
•A basket to allow for investments not to exceed the greater of (1) 200% of the consolidated net worth of Encore and its restricted subsidiaries; and (2) an unlimited amount such that after giving effect to the making of any investment, the cash flow leverage ratio is less than 1.25:1:00;
•A basket to allow for investments in persons organized under the laws of Canada in the amount of $50.0 million;
•Collateralization by all assets of the Company other thanand 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 Private Placement Notes (collectively, “Super Senior Liabilities”) and (2) the Senior Secured Notes, Super Senior Liabilities that are secured by assets of certain foreign subsidiaries and all unrestricted subsidiaries as defined inthat also secure the Restated Credit Agreement.Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.
As of March 31, 2020,2021, the outstanding balanceborrowings under the Revolving CreditGlobal Senior Facility was $528.0 million, which bore awere $520.5 million. The weighted average interest rate of 4.58% and 5.50%the Global Senior Facility was 3.25% for the three months ended March 31, 2020 and 2019, respectively.2021. The weighted average interest rate of the previous Cabot Credit Facility was 3.55% for the three months ended March 31, 2020. The weighted average interest rate of the previous Encore revolving credit facility was 4.58% for the three months ended March 31, 2020. Available capacity under the Revolving CreditGlobal Senior Facility after taking into account borrowing base and applicable debt covenants, was $356.2approximately $529.5 million as of March 31, 2020. As2021.
Encore Senior SecuredPrivate Placement Notes
In August 2017, Encore entered into $325.0 million in senior secured notes with a group of insurance companies (the “Senior Secured“Private Placement Notes”). As of March 31, 2021, $136.8 million of the Private Placement Notes remained outstanding. The Senior SecuredPrivate Placement Notes bear an annual interest rate of 5.625%, mature in August 2024 and beginning in November 2019, require quarterly principal payments of $16.3$9.8 million. As of March 31, 2020, $292.5 million of the Senior Secured Notes remained outstanding.
The covenants and material terms in the purchase agreement for the Senior SecuredPrivate Placement Notes are substantially similar to those for the Global Senior Facility.
Senior Secured Notes
The following table provides a summary of the Senior Secured Notes ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 | | Maturity Date | | Interest Payment Dates | | Interest Rate |
Cabot 2023 Notes | $ | 311,779 | | | $ | 309,034 | | | Oct 1, 2023 | | Apr 1, Oct 1 | | 7.500 | % |
| | | | | | | | | |
Encore 2025 Notes | 410,466 | | | 426,752 | | | Oct 15, 2025 | | Apr 15, Oct 15 | | 4.875 | % |
Encore 2026 Notes | 413,466 | | | 409,827 | | | Feb 15, 2026 | | Feb 15, Aug 15 | | 5.375 | % |
Encore 2028 Floating Rate Notes | 486,696 | | | 506,006 | | | Jan 15, 2028 | | Jan 15, Apr 15, Jul 15, Oct 15 | | EURIBOR +4.250%(1) |
| $ | 1,622,407 | | | $ | 1,651,619 | | | | | | | |
_______________________
(1)Interest rate is based on a three-months EURIBOR (subject to a 0% floor) plus 4.250% per annum, resets quarterly.
The Senior Secured Notes are secured by the Restatedsame collateral as the Global Senior Facility and the 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 Private Placement Notes. Subject to the intercreditor agreement described above under “Global Senior Secured Revolving Credit Agreement.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.
Encore 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):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 | | Maturity date | | Interest rate |
2020 Convertible Notes | $ | 89,355 | | | $ | 89,355 | | | Jul 1, 2020 | | 3.000 | % |
2021 Convertible Notes | 161,000 | | | 161,000 | | | Mar 15, 2021 | | 2.875 | % |
2022 Convertible Notes | 150,000 | | | 150,000 | | | Mar 15, 2022 | | 3.250 | % |
Exchangeable Notes | 172,500 | | | 172,500 | | | Sep 1, 2023 | | 4.500 | % |
2025 Convertible Notes | 100,000 | | | 100,000 | | | Oct 1, 2025 | | 3.250 | % |
| $ | 672,855 | | | $ | 672,855 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 | | Maturity Date | | Interest Payment Dates | | Interest Rate |
2021 Convertible Notes(1) | $ | 0 | | | $ | 161,000 | | | Mar 15, 2021 | | Mar 15, Sep 15 | | 2.875 | % |
2022 Convertible Notes | 150,000 | | | 150,000 | | | Mar 15, 2022 | | Mar 15, Sep 15 | | 3.250 | % |
2023 Exchangeable Notes | 172,500 | | | 172,500 | | | Sep 1, 2023 | | Mar 1, Sep 1 | | 4.500 | % |
2025 Convertible Notes | 100,000 | | | 100,000 | | | Oct 1, 2025 | | Apr 1, Oct 1 | | 3.250 | % |
| $ | 422,500 | | | $ | 583,500 | | | | | | | |
_______________________
(1)The 2021 Convertible Notes matured on March 15, 2021 and the Company repaid the outstanding principal in cash.
The Exchangeable Notes were issued by Encore Capital Europe Finance Limited (“Encore Finance”), a 100% owned finance subsidiary of Encore, and are fully and unconditionally guaranteed by Encore. Unless otherwise indicated in connection with a particular offering of debt securities, Encore will fully and unconditionally guarantee any debt securities issued by Encore Finance. Amounts related to Encore Finance are included in the consolidated financial statements of Encore subsequent to April 30, 2018, the date of the incorporation of Encore Finance.
Prior to the close of business on the business day immediately preceding their respective free conversion or exchange date (listed below), holders may convert or exchange their Convertible Notes or Exchangeable Notes under certain circumstances set forth in the applicable indentures. On or after their respective free conversion or exchange dates until the close of business on the second scheduled trading day immediately preceding their respective maturity date, holders may convert or exchange their notes at any time. Certain key terms related to the convertible and exchangeable features as of March 31, 20202021 are listed below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 Convertible Notes | | 2021 Convertible Notes | | 2022 Convertible Notes | | 2023 Exchangeable Notes | | 2025 Convertible Notes |
Initial conversion or exchange price | $ | 45.72 | | | $ | 59.39 | | | $ | 45.57 | | | $ | 44.62 | | | $ | 40.00 | |
Closing stock price at date of issuance | $ | 33.35 | | | $ | 47.51 | | | $ | 35.05 | | | $ | 36.45 | | | $ | 32.00 | |
Closing stock price date | Jun 24, 2013 | | Mar 5, 2014 | | Feb 27, 2017 | | Jul 20, 2018 | | Sep 4, 2019 |
Conversion or exchange rate (shares per $1,000 principal amount) | 21.8718 | | | 16.8386 | | | 21.9467 | | | 22.4090 | | | 25.0000 | |
Conversion or exchange date | Jan 1, 2020 | | Sep 15, 2020 | | Sep 15, 2021 | | Mar 1, 2023 | | Jul 1, 2025 |
| | | | | | | | | | | | | | | | | | | |
| | | 2022 Convertible Notes | | 2023 Exchangeable Notes | | 2025 Convertible Notes |
Initial conversion or exchange price | | | $ | 45.57 | | | $ | 44.62 | | | $ | 40.00 | |
Closing stock price at date of issuance | | | $ | 35.05 | | | $ | 36.45 | | | $ | 32.00 | |
Closing stock price date | | | Feb 27, 2017 | | Jul 20, 2018 | | Sep 4, 2019 |
Conversion or exchange rate (shares per $1,000 principal amount) | | | 21.9467 | | | 22.4090 | | | 25.0000 | |
Free conversion or exchange date | | | Sep 15, 2021 | | Mar 1, 2023 | | Jul 1, 2025 |
Stated interest rate | | | 3.250 | % | | 4.500 | % | | 3.250 | % |
In the event of conversion or exchange, holders of the Company’s Convertible Notes or Exchangeable Notes will receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The Company’s current intent is to settle conversions and exchanges through combination settlement (i.e.,notes are convertible or exchangeable into cash up to the aggregate principal amount and shares of the Company’s common stocknotes and the excess conversion premium, if any, may be settled in cash or a combination of cash and 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 and Exchangeable Notes, forNotes.
As discussed in “Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies,” the remainder). AsCompany adopted ASU 2020-06 on January 1, 2021 using a result,modified-retrospective approach. The Company’s convertible and in accordance with authoritative guidance relatedexchangeable notes are no longer bifurcated to derivativesa debt component and hedging and earnings per share, only the conversion or exchange spread is included in the diluted earnings per share calculation, if dilutive. Under such method, the settlement of the conversion or exchange spread has a dilutive effect when, during any quarter, the average share price of the Company’s common stock exceeds the initial conversion or exchange prices listed in the above table.
The debt and equity components, the issuance costs related to thean equity component, the stated interest rate, and the effective interest rate for each of the Convertible Notes and Exchangeable Notes at the time of the original offeringinstead, they are listed below (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 Convertible Notes(1) | | 2021 Convertible Notes | | 2022 Convertible Notes | | 2023 Exchangeable Notes | | 2025 Convertible Notes |
Debt component | $ | 140,247 | | | $ | 143,645 | | | $ | 137,266 | | | $ | 157,971 | | | $ | 91,024 | |
Equity component | $ | 32,253 | | | $ | 17,355 | | | $ | 12,734 | | | $ | 14,009 | | | $ | 8,976 | |
Equity issuance cost | $ | 1,106 | | | $ | 581 | | | $ | 398 | | | $ | — | | | $ | 224 | |
Stated interest rate | 3.000 | % | | 2.875 | % | | 3.250 | % | | 4.500 | % | | 3.250 | % |
Effective interest rate | 6.350 | % | | 4.700 | % | | 5.200 | % | | 6.500 | % | | 5.000 | % |
________________________
(1)The Company usedcarried as a portion ofsingle liability, which reflects the net proceeds from the issuance of the 2025 Convertible Notes to repurchase approximately $83.1 million aggregate principal amount of its 2020 Convertible Notes. As a result, the remaining principal amount of the 2020 Convertible Notes was $89.4 million as of March 31, 2020.
The balances of the liabilityconvertible and equity components of all the Convertible Notes and Exchangeable Notes outstanding were as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Liability component—principal amount | $ | 672,855 | | | $ | 672,855 | |
Unamortized debt discount | (27,264) | | | (30,308) | |
Liability component—net carrying amount | $ | 645,591 | | | $ | 642,547 | |
Equity component | $ | 83,127 | | | $ | 83,127 | |
exchangeable notes. The debt discount is being amortized into interest expense overrecognized on the remaining life of the Convertible Notesconvertible and Exchangeable Notes using theexchangeable notes is based on coupon rates, rather than higher effective interest rates. The Company has not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous accounting guidance.
Interest expense related to the Convertible Notes and Exchangeable Notes during the periods presented was as follows (in thousands):
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | | 2021 | | 2020 | |
Interest expense—stated coupon rate | Interest expense—stated coupon rate | | $ | 5,799 | | | $ | 5,337 | | Interest expense—stated coupon rate | $ | 4,923 | | | $ | 5,799 | | |
Interest expense—amortization of debt discount | Interest expense—amortization of debt discount | | 3,044 | | | 3,121 | | Interest expense—amortization of debt discount | 0 | | | 3,044 | | |
Interest expense—Convertible Notes and Exchangeable Notes | Interest expense—Convertible Notes and Exchangeable Notes | | $ | 8,843 | | | $ | 8,458 | | Interest expense—Convertible Notes and Exchangeable Notes | $ | 4,923 | | | $ | 8,843 | | |
Hedge Transactions
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 or exchange prices of the Convertible Notes and the2023 Exchangeable Notes, the Company maintains a hedge program that increases the effective conversion or exchange price for the 2020 Convertible Notes, the 2021 Convertible Notes and the2023 Exchangeable Notes. The Company did not hedge the 2022 Convertible Notes or the 2025 Convertible Notes.
The details of the hedge program are listed below (in thousands, except conversion or exchange price):
| | | | | | | | | | | | | | | | | |
| 2020 Convertible Notes | | 2021 Convertible Notes | | 2023 Exchangeable Notes |
Cost of the hedge transaction(s) | $ | 18,113 | | | $ | 19,545 | | | $ | 17,785 | |
Initial conversion or exchange price | $ | 45.72 | | | $ | 59.39 | | | $ | 44.62 | |
Effective conversion or exchange price | $ | 61.55 | | | $ | 83.14 | | | $ | 62.48 | |
| | | | | | | |
| | | 2023 Exchangeable Notes |
Cost of the hedge transaction(s) | | | $ | 17,785 | |
Initial exchange price | | | $ | 44.62 | |
Effective exchange price | | | $ | 62.48 | |
Cabot Senior Secured Notes
The following table provides a summary of the Cabot senior secured notes ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 | | Maturity date | | Interest rate |
Floating rate senior secured notes due 2024 | $ | 441,336 | | | $ | 448,921 | | | Jun 1, 2024 | | EURIBOR +6.375% |
| | | | | | | |
Senior secured notes due 2023 | 637,629 | | | 680,118 | | | Oct 1, 2023 | | 7.500 | % |
| | | | | | | |
| $ | 1,078,965 | | | $ | 1,129,039 | | | | | |
Interest expense related to the Cabot senior secured notes was as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
Interest expense—stated coupon rate | | | | | $ | 19,417 | | | $ | 19,394 | |
Interest expense—amortization of debt discount | | | | | 85 | | | 202 | |
Interest expense—Cabot senior secured notes | | | | | $ | 19,502 | | | $ | 19,596 | |
Cabot Senior Revolving Credit Facility
Cabot Financial (UK) Limited (“Cabot Financial UK”) has an amended and restated senior secured revolving credit facility agreement (as amended and restated, the “Cabot Credit Facility”). As of March 31, 2020, the Cabot Credit Facility provided for a total committed facility of £375.0 million that expires in September 2023 and included the following key provisions:
•Interest at LIBOR (or EURIBOR for any loan drawn in euro) plus 3.00% per annum;
•A restrictive covenant that limits the loan to value ratio to 0.75 in the event that the Cabot Credit Facility is more than 20% utilized;
•A restrictive covenant that limits the super senior loan (i.e., the Cabot Credit Facility and any super priority hedging liabilities) to value ratio to 0.275; and
•Additional restrictions and covenants which limit, among other things, the payment of dividends and the incurrence of additional indebtedness and liens.
As of March 31, 2020, the outstanding borrowings under the Cabot Credit Facility were £194.0 million (approximately $241.2 million). The weighted average interest rate was 3.55% and 3.37% for the three months ended March 31, 2020 and 2019, respectively. Available capacity under the Cabot Credit Facility, after taking into account borrowing base and applicable debt covenants, was £181.0 million (approximately $225.0 million) as of March 31, 2020.
Cabot Securitisation Senior Facility
Cabot’s wholly owned subsidiary Cabot Securitisation UK Ltd (“Cabot Securitisation”) entered into, an indirect subsidiary of Encore, has a senior facility agreement (the “Senior Facility Agreement”) for a committed amount of £300.0 million. In November 2018, Cabot’s wholly owned subsidiary£350.0 million (as amended, the “Cabot Securitisation Senior Facility”). The Cabot Securitisation UK II Ltd (“Cabot Securitisation II”) entered into a non-recourse asset backed senior facility of £50.0 million.
On February 18, 2020, Cabot Securitisation amended and restated its Senior Facility Agreement. Pursuant to the amendment and restatement of the Senior Facility Agreement, the total commitment amount was increased by £50.0 million from £300.0 million to £350.0 million, the repayment date was extended from September 15, 2023 tomatures in March 15, 2025 and SONIA replaced LIBOR as the reference rate.2025. Funds drawn under the amended and restatedCabot Securitisation Senior Facility Agreement bear interest at a rate per annum equal to SONIA plus a margin of 3.06% plus, for periods after March 15, 2023, a step-up margin ranging from 0 to 1.00%. Cabot Securitisation has drawn down the additional £50.0 million and used the proceeds to purchase receivables from Cabot Securitisation II in order to effect the termination of the £50.0 million senior facility of Cabot Securitisation II.
As of March 31, 2020,2021, the outstanding borrowings under the Cabot Securitisation Senior Facility were £350.0 million (approximately $435.1 million)$482.4 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of March 31, 2021). The obligations of Cabot Securitisation under the Cabot Securitisation Senior Facility Agreement 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 £377.6£381.9 million (approximately
$469.4 million)$1.00 to £0.73, the exchange rate as of March 31, 2020.2021) as of March 31, 2021. The weighted average interest rate was 3.52%3.11% and 3.76%3.52% for the three months ended March 31, 20202021 and 20192020, respectively.
Cabot Securitisation and Cabot Securitisation II areis a securitized financing vehiclesvehicle and are VIEsis a VIE for consolidation purposes. Refer to “Note 9:8: Variable Interest Entities”, for further details.
Note 9:8: 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 benefits from the entity that could potentially be significant to the VIE. The Company consolidates VIEs when it is the primary beneficiary.
The Company evaluates its relationships with its VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary. A reconsideration event is significant if it changes the design of the entity or the entity’s equity investment at risk. Prior to the purchase of all of the outstanding equity of CCM not owned by the Company, CCM’s indirect holding Company Janus Holdings S.a r.l. (“Janus Holdings”) was a VIE. Upon completion of the Cabot Transaction on July 24, 2018 and the subsequent change in organizational structure, Janus Holdings no longer qualified as a VIE and CCM is consolidated via the voting interest model.
As of March 31, 2020,2021, 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 which includes but is not limited to the ability to exercise discretion in the servicing of the financial assets. 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.
Note 10:9: Income Taxes
The Company recorded incomeCompany's effective tax expense of $4.6 million on consolidated loss before income taxes of $6.0 million duringrate for the three months ended March 31, 2021 was 22.2%. For the three months ended March 31, 2020, and incomethe Company recorded tax expense on a pre-tax loss resulting in a negative tax rate of $3.7 million on consolidated income before income taxes of $53.1 million during75.7%. The difference between the three months ended March 31, 2019. The incomeeffective tax expense forrate and the three months ended March 31,21% federal statutory rate in 2020 was primarily attributable to the recording of valuation allowances in certain foreign jurisdictions that incurred pre-tax losses. The income tax expense for the three months ended March 31, 2019 included a tax benefit of approximately $9.1 million relateddue to a tax accounting method change for revenue reporting approved by the Internal Revenue Service during the period.
The effective tax rates for the respective periods are shown below:
| | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
Federal provision | | | | | 21.0 | % | | 21.0 | % |
State provision | | | | | (15.6) | % | | 2.5 | % |
Foreign income taxed at different rates(1) | | | | | (3.2) | % | | (0.9) | % |
Change in valuation allowance(2) | | | | | (66.5) | % | | 1.9 | % |
Change in tax accounting method(3) | | | | | — | % | | (17.1) | % |
Foreign currency remeasurement | | | | | (6.4) | % | | 0.2 | % |
Permanent items(4) | | | | | (1.7) | % | | 0.1 | % |
Other | | | | | (3.3) | % | | (0.8) | % |
Effective tax rate | | | | | (75.7) | % | | 6.9 | % |
________________________
(1)Relates primarily to the lower tax rates on the income or loss attributable to international operations.
(2)Change in valuation allowance during 2020,over consolidated pre-tax loss for the period, recognized in the period under the discrete method, is attributable to losses incurred at certain foreign subsidiaries with cumulative operating losses for tax purposes.
(3)In 2019, includes tax benefit resulting from tax accounting method change.
(4)Represents a provision for nondeductible expenses
method. The Company utilized the discrete effective tax rate method (“discrete method”) for recording income taxes for the three months ended March 31, 2020. The Company believes the use of the discrete method is more appropriate than the application of the estimated annual effective tax rate (“AETR”) methodduring 2020 due to uncertainty in estimating annual pre-tax earnings, primarily due to the ongoing COVID-19 pandemic. The Company will re-evaluatere-evaluated the usemethodology in calculating income taxes and returned to using the estimated annual effective tax rate method during the three months ended March 31, 2021.
Each interim period is considered an integral part of the discrete method each quarter until itannual period and tax expense or benefit is deemed appropriate to returnmeasured using an estimated annual effective income tax rate. The estimated annual effective tax rate for the full year is applied to the AETR method.respective interim period, taking into account year-to-date amounts and projected amounts for the year. Since the Company operates in foreign countries with varying tax rates, the Company's quarterly effective tax rate is dependent on the level of income or loss from international operations in the reporting period.
The Company’sCompany'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 three months ended March 31, 20202021 and 2019,2020, was immaterial.
The Company had gross unrecognizedis subject to income taxes in the U.S. and foreign jurisdictions. Significant judgement is required in evaluating uncertain tax benefits, inclusive of penaltiespositions and interest, of $8.2 million as of March 31, 2020. These unrecognized tax benefits, if recognized, would result in a net tax benefit of $7.6 million as of March 31, 2020.determining our provision for income taxes. There washas been no material change into the Company’s total gross unrecognized tax benefits from December 31, 2019.
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 March 31, 2020 was approximately $117.1 million. Such undistributed earnings are considered permanently reinvested. The Company does not provide deferred taxes on translation adjustments on unremitted earnings under the indefinite reversal 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 reversal exemption have no material undistributed earnings or outside basis differences and therefore no U.S. taxes have been provided.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in response to the COVID-19 pandemic. The CARES Act contains several corporate income tax provisions, including modifications to the limitation on business interest expense and net operating loss regulations, and provides for a payment delay of employer payroll taxes and income taxes. The CARES Act did not have a material impact on the Company’s effective tax rate or income tax provision for the three months ended March 31, 2020.
Note 11:10: Commitments and Contingencies
Litigation and Regulatory
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 based on the Fair Debt Collection Practices Act (“FDCPA”), comparable state statutes, the Telephone Consumer Protection Act (“TCPA”), 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.
As of March 31, 2020,2021, there were no material developments in any of the legal proceedings disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.
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 March 31, 2020,2021, the Company has 0 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 and other purchase commitment agreements. may also have termination clauses, whereby the agreements can be canceled by either party upon providing a certain specified amount of notice.
As of March 31, 2020,2021, the Company had entered into forward flow purchase agreements tofor the purchase receivable portfoliosof nonperforming loans with a face value of approximately $3.0 billion for aan estimated minimum aggregate purchase price of approximately $378.4$224.0 million. The Company expects actual purchases under these forward flow purchase agreements to be significantly greater than the estimated minimum aggregate purchase price.
Note 12:11: Segment and Geographic Information
The Company conducts business through several operating segments that have similar economic and other qualitative characteristics and have been aggregated in accordance with authoritative guidance into 1 reportable segment, portfolio purchasing and recovery. Since the Company operates in one1 reportable segment, all required segment information can be found in the consolidated financial statements.
The Company has operations in the United States, Europe and other foreign countries. The following table presents the Company’s total revenues by geographic area in which the Company operates (in thousands):
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | | 2021 | | 2020 | |
Total revenues(1): | Total revenues(1): | | | | | Total revenues(1): | | | | |
United States | United States | | $ | 208,218 | | | $ | 189,372 | | United States | $ | 287,787 | | | $ | 208,218 | | |
International | International | | | International | | |
Europe(2) | Europe(2) | | 75,965 | | | 135,276 | | Europe(2) | 123,902 | | | 75,965 | | |
Other geographies | Other geographies | | 4,898 | | | 22,429 | | Other geographies | 5,148 | | | 4,898 | | |
| | | 80,863 | | | 157,705 | | | 129,050 | | | 80,863 | | |
Total | Total | | $ | 289,081 | | | $ | 347,077 | | Total | $ | 416,837 | | | $ | 289,081 | | |
________________________
(1)Total revenues for periods in 2019 are adjusted by net allowances. Total revenues are attributed to countries based on consumer location.
(2)Based on the financial information that is used to produce the general-purpose financial statements, providing further geographic information is impracticable.
Note 13:12: Goodwill and Identifiable Intangible Assets
GoodwillThe 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 testing in the fourth quarter of each year. During the 2019 impairment testing, both of the two reporting units had fair values substantially in excess of their carrying values. In addition to the annual impairment test, the Company is required to assess whether a triggering event has occurred which would require interim impairment testing. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units. Further, the Company assessed the current market capitalization, forecasts and the amount of headroom in the 2019 impairment test. The Company determined that it was
not more likely than not that the fair value of each ofdate for the reporting units was less than its respective carrying value as ofthat are included in the portfolio purchasing and recovery reportable segment is October 1st. There have been no events or circumstances during the three months ended March 31, 2020. Therefore,2021 that have required the Company to perform an interim quantitative impairment test was not performed.
assessment of goodwill carried at these reporting units. Management continues to evaluate and monitor all key factors impacting the carrying value of the Company’s recorded goodwill and long-lived 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 reporting units included in its portfolio purchasing and recovery segment. The following table summarizes the activity in the Company’s goodwill balance (in thousands):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2020 | | 2019 | | 2021 | | 2020 | |
Balance, beginning of period | Balance, beginning of period | $ | 884,185 | | | | $ | 868,126 | | Balance, beginning of period | $ | 906,962 | | | $ | 884,185 | | |
| Effect of foreign currency translation | Effect of foreign currency translation | (44,884) | | | | 14,758 | | Effect of foreign currency translation | 5,208 | | | (44,884) | | |
Balance, end of period | Balance, end of period | $ | 839,301 | | | $ | 882,884 | | Balance, end of period | $ | 912,170 | | | $ | 839,301 | | |
The Company’s acquired intangible assets are summarized as follows (in thousands):
| | | As of March 31, 2020 | | | As of December 31, 2019 | | | As of March 31, 2021 | | As of December 31, 2020 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | Customer relationships | $ | 60,718 | | | $ | (15,565) | | | $ | 45,153 | | | $ | 67,897 | | | $ | (18,191) | | | $ | 49,706 | | Customer relationships | $ | 68,385 | | | $ | (26,174) | | | $ | 42,211 | | | $ | 66,796 | | | $ | (22,714) | | | $ | 44,082 | |
Developed technologies | Developed technologies | 4,257 | | | (3,744) | | | 513 | | | 4,734 | | | (4,124) | | | 610 | | Developed technologies | 2,643 | | | (2,449) | | | 194 | | | 5,048 | | | (4,760) | | | 288 | |
Trade name and other | Trade name and other | 5,248 | | | (4,543) | | | 705 | | | 6,299 | | | (5,244) | | | 1,055 | | Trade name and other | 1,586 | | | (1,000) | | | 586 | | | 6,644 | | | (6,002) | | | 642 | |
Total intangible assets | Total intangible assets | $ | 70,223 | | | $ | (23,852) | | | $ | 46,371 | | | $ | 78,930 | | | $ | (27,559) | | | $ | 51,371 | | Total intangible assets | $ | 72,614 | | | $ | (29,623) | | | $ | 42,991 | | | $ | 78,488 | | | $ | (33,476) | | | $ | 45,012 | |
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q 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, financing needs or plans or the impacts of the COVID-19 pandemic, as well as assumptions relating to these matters. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we caution that these expectations or predictions may not prove to be correct or we may not achieve the financial results, savings, or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control or cannot be predicted or quantified, that could cause actual results to differ materially from those suggested by the forward-looking statements. Many factors including, but not limited to, those set forth in our Annual Report on Form 10-K under “Part I, Item 1A—Risk Factors” and those set forth in “Part II, Item 1A, Risk Factors” of this Quarterly Report 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 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 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.
Encore Capital Group, Inc. (“Encore”) has three primary 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, including Puerto Rico.
Cabot (Europe)
Through Cabot we are one of the largest credit management services providers in Europe and a market leader in the United Kingdom and Ireland. 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 U.K. contingency debt collection and BPO services company.
LAAP (Latin America and Asia-Pacific)
We have purchased non-performing loans in Colombia, Peru, Mexico and Brazil (which was sold in April 2020). 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.
Recent Developments
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic, which has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns (including court closures in certain jurisdictions). While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations for an indefinite period of time.
Although such disruptions did not have Through a material effect on our day-to-day operations forcombination of work-from-home and social distancing, we remain fully operational in all the first quarter of 2020, they are having an adverse impact on our ability to collect and are expected to delay a portion of our near-term collections on purchased receivable portfolios. Therefore, in accordance with the new accounting standard for Financial Instruments - Credit Losses (“CECL”),markets we have updated our expectations of timing of future collections primarily asserve. As a result of COVID-19, the financial impact of which materially impacted our results of operations.
Government Regulation
There have been various governmental actions taken, or proposed, in response to the COVID-19 pandemic such as limiting debt collections efforts and encouraging or requiring extensions, modifications or forbearance, with respect to certain loans and fees. In addition, in certain jurisdictions courts have closed and/or government actions have affected the litigation process. Government actions have not been consistent across jurisdictions and the efficacyresulting containment measures, we have observed, among other things: a decrease in supply in the U.S. driven mainly by a decrease in charge-off rates; a decrease in supply in Europe, which we believe is driven by both a decrease in charge-off rates and ultimate effect of such actions is not known. Wedecreased sales as the banks focus on their customers’ needs; and impacts to the legal collections process, which negatively affected legal collections beginning in late March 2020 and could continue to monitor federal, stateaffect legal collections and international regulatory developments in relation torelated costs depending on the duration and severity of the COVID-19 pandemic and their potential impact on our operations.the resulting containment measures.
Government Regulation
MCM (United States)
As discussed in more detail under “Part I - Item 1 - Business - Government Regulation” contained in our Annual Report on Form 10-K, our U.S. debt purchasing business and collection activities 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.
On October 30, 2020, the CFPB issued final rules in the form of a new Regulation F to implement the Fair Debt Collection Practices Act, which rules restate and clarify 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 and limits relating to telephonic communications. On December 18, 2020, the CFPB also issued an additional debt collection final rule focused on consumer disclosures. This final rule amends Regulation F to provide additional requirements regarding validation information and disclosures provided at the outset of debt collection communications, prohibit suits and threats of suits regarding time-barred debt, and identify actions that must be taken before a debt collector may report information about a debt to consumer reporting agencies. The rules are scheduled to become effective on November 30, 2021; however the CFPB is proposing to extend the effective date to January 29, 2022. Based on our preliminary assessment of the rules, we believe that the new rules will not have a material incremental effect on our operations.
Cabot (Europe)
As discussed in more detail under “Part I - Item 1 - Business - Government Regulation” contained in our Annual Report on Form 10-K, our operations 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 comprises 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 domestic business.U.S. operations. These methods and models allow us to value portfolios accurately (and limit 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 under-performing debt portfolios primarily consist of paying and non-paying consumer loan accounts. We also purchase certain secured mortgage portfolios andpurchase: (1) portfolios that are in insolvency status, in particular, individual voluntary arrangements.arrangements; and (2) non-performing secured mortgage portfolios and real estate assets previously securing mortgage portfolios. When we take possession of the underlying real estate assets or purchase real estate assets, we refer to those as real estate-owned assets, or REO assets.
We purchase paying and non-paying receivable portfolios using a proprietary pricing model that utilizes account-level statistical and behavioral data. This model allows us to value portfolios with a high degree of accuracyaccurately 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 continue to expand in the United Kingdom and the rest of Europe with our acquisitions of portfolios and other credit management services providers.
Purchases and Collections
Portfolio Pricing, Supply and Demand
MCM (United States)
Industry delinquency and charge-off rates have continued to increase, creating higher volumes of charged-off accounts that are sold. In addition, issuersIssuers 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. Meanwhile pricingPricing in the first quarter remained favorable. In addition to selling a higher volume of charged-off accounts, issuersin line with previous periods. Issuers continued to sell their volume in mostly forward flow arrangements that are often committed early in the calendar year. We are closely monitoring the impacts of the COVID-19 pandemic on pricing and supply. We have observed a decrease in supply as well as collections and cost-to-collect.a result of the COVID-19 pandemic, but expect supply to ultimately increase.
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 because issuers are being more selective with buyers in the marketplace. We believe this favors larger participants, such as Encore,us, because the larger market participants are better able to adapt to these pressures and commit to larger forward flow agreements.
Cabot (Europe)
The U.K. market for charged-off portfolios has generally provided a relatively consistent pipeline of opportunities over the past few years, despite an ongoing historic low level of charge-off rates, as creditors have embedded debt sales as an integral part of their business models and consumer indebtedness has continued to grow since the financial crisis.
The Spanish debt market continues to be one of the largest in Europe with significant debt sales activity, and an expectation of a significant amount of debt to be sold and serviced. In particular, we anticipate strong debt purchasing and servicing opportunitiesserviced in the secured and small and medium enterprise asset classes given the backlog of non-performing debt that has accumulated in these sectors.future. Additionally, financial institutions continue to experience both market and regulatory pressure to dispose of non-performing loans, which should further increasecontinue to provide debt purchasing opportunities in Spain.
Across all of our European markets, we are closely monitoring the impacts of the COVID-19 pandemic on pricing and supply of portfolios to purchase. Due to the COVID-19 pandemic, banks have pauseddecreased portfolio sales during 2020 in order to addressfocus on customers’ needs. AsWhile we have seen a result, we expectresumption of sales activity across many of our European markets in 2021, underlying default rates are generally low by historic levels, and sales levels are expected to fluctuate from quarter to quarter as banks seek to re-establish a lower levelmore stable debt sales strategy.
Purchased ReceivablesPurchases by Geographic Location
The following table summarizes the geographic locations of receivable portfolios we purchased during the periods presented (in thousands):
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | | 2021 | | 2020 | |
MCM (United States) | MCM (United States) | | $ | 185,252 | | | $ | 174,227 | | MCM (United States) | $ | 92,352 | | | $ | 185,252 | | |
Cabot (Europe) | Cabot (Europe) | | 28,861 | | | 83,640 | | Cabot (Europe) | 77,826 | | | 28,861 | | |
Other geographies | | — | | | 4,468 | | |
Total purchases | | $ | 214,113 | | | $ | 262,335 | | |
| Total purchases of receivable portfolios | | Total purchases of receivable portfolios | $ | 170,178 | | | $ | 214,113 | | |
During the three months ended March 31, 2020,2021, we invested $170.2 million to acquire receivable portfolios, with face values aggregating $1.3 billion, for an average purchase price of 12.8% of face value. The amount invested in receivable portfolios decreased $43.9 million, or 20.5%, compared with the $214.1 million invested during the three months ended March 31, 2020, to acquire receivable portfolios with face values aggregating $1.7 billion, for an average purchase price of 12.6% of face value. The amount invested in
In the United States, purchases of receivable portfolios decreased $48.2 million, or 18.4%, compared with the $262.3 million invested during the three months ended March 31, 2019, to acquire receivable portfolios with face values aggregating $1.7 billion, for an average purchase price of 15.1% of face value.
In the United States, capital deployment increased during the three months ended March 31, 2020,2021 as compared to the corresponding periodsperiod in the prior year. The majority of our deploymentspurchases in the U.S. are in forward flow agreements, and the timing, contract duration, and volumes for each contract can fluctuate leading to variation when comparing to prior periods.
a decrease in supply which we believe is temporary. In Europe, capital deploymentpurchases of receivable portfolios increased during the three months ended March 31, 2020 decreased2021 as compared to the corresponding periods in the prior year. The decreases wereincrease was primarily the result of a relatively limited supply of portfolios in the quarter and a continuation of our selective purchasing process in conjunction with a plan to reduce European debt leverage over time.during the three months ended March 31, 2020. The increase was also attributable to the favorable impact from foreign currency translation, primarily by the weakening of the U.S. dollar against the British Pounds.
The average purchase price, as a percentage of face value, varies from period to period depending on, among other factors, the quality of the accounts purchased and the length of time from charge-off to the time we purchase the portfolios.
During the three months ended March 31, 2021 and 2020, we also invested $2.4 million and $1.2 million in REO assets, respectively.
Collections from Purchased Receivables by Channel and Geographic Location
We utilize three channels for the collection of our purchased receivables: call center and digital collections; legal collections; and collection agencies. The call center and digital collections channel consists of collections that result from our call centers, direct mail program and online collections. The legal collections channel consists of collections that result from our internal legal channel or from our network of retained law firms. The collection agencies channel consists of collections from third-party collection agencies that we utilize when we believe they can liquidate better or less expensively than we can or to supplement capacity in our internal call centers. The collection agencies channel also includes collections on accounts purchased where we maintain the collection agency servicing until the accounts can be recalled and placed in our internal collection channels. The following table summarizes the total collections from receivable portfolios by collection channel and geographic area during the periods presented (in thousands):
| | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
MCM (United States): | | | | | | | |
Call center and digital collections | | | | | $ | 214,238 | | | $ | 185,255 | |
Legal collections | | | | | 158,026 | | | 141,036 | |
Collection agencies | | | | | 2,465 | | | 3,303 | |
Subtotal | | | | | 374,729 | | | 329,594 | |
Cabot (Europe): | | | | | | | |
Call center and digital collections | | | | | 63,789 | | | 62,665 | |
Legal collections | | | | | 42,900 | | | 50,658 | |
Collection agencies | | | | | 37,414 | | | 47,477 | |
Subtotal | | | | | 144,103 | | | 160,800 | |
Other geographies: | | | | | | | |
Call center and digital collections | | | | | — | | | 10,200 | |
Legal collections | | | | | — | | | 1,530 | |
Collection agencies | | | | | 8,447 | | | 11,729 | |
Subtotal | | | | | 8,447 | | | 23,459 | |
Total collections from purchased receivables | | | | | $ | 527,279 | | | $ | 513,853 | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
MCM (United States): | | | | | | | |
Call center and digital collections | $ | 267,984 | | | $ | 214,238 | | | | | |
Legal collections | 164,332 | | | 158,026 | | | | | |
Collection agencies | 3,257 | | | 2,465 | | | | | |
Subtotal | 435,573 | | | 374,729 | | | | | |
Cabot (Europe): | | | | | | | |
Call center and digital collections | 70,551 | | | 63,789 | | | | | |
Legal collections | 49,065 | | | 42,900 | | | | | |
Collection agencies | 42,985 | | | 37,414 | | | | | |
Subtotal | 162,601 | | | 144,103 | | | | | |
Other geographies: | | | | | | | |
| | | | | | | |
| | | | | | | |
Collection agencies | 8,287 | | | 8,447 | | | | | |
Subtotal | 8,287 | | | 8,447 | | | | | |
Total collections from purchased receivables | $ | 606,461 | | | $ | 527,279 | | | | | |
Gross collections from purchased receivables increased by $13.4$79.2 million, or 2.6%15.0%, to $606.5 million during the three months ended March 31, 2021, from $527.3 million during the three months ended March 31, 2020,2020.
Gross collections from $513.9 million during the three months ended March 31, 2019. The increase of gross collections was attributable to increased collectionsreceivable portfolios in the United States offsetincreased significantly. The increase was primarily driven by decreaseschange in consumer behavior during the COVID-19 pandemic and our continued effort in improving liquidation. We are increasingly being called upon by our consumers to assist them with their financial recovery through inbound calls and online digital interaction. The large volume of consumer contact resulted in significant increase in collections in Europe and other geographies.improved our operating efficiency.
The increase ofin collections from purchased receivables in the United StatesEurope was primarily due to the acquisition of portfolios with higher returns in recent periods the increase in our collection capacity, and our continued effort in improving liquidation. Our consumer centric collection approach and our capacity buildup are driving a higher proportion of call center collections compared to legal collections in the United States.
The decrease in collections from purchased receivables in Europe was primarily due to a reduced level of capital deployment in recent periods in conjunction with our plan to reduce European debt leverage over time, the impacts of COVID-19, and the unfavorablefavorable impact offrom foreign currency translation, which was primarily by the result of the strengtheningweakening of the U.S. dollar against the British Pound.Pounds.
The decrease in collections from purchased receivables in other geographies was primarily due to the sale of our wholly-owned subsidiary Baycorp in August 2019.
COVID-19 pandemic and the resulting containment measures, including impacts to the legal collections process, negatively affected legal collections beginning in late March 2020 and could continue to affect legal collections and related costs depending on the duration and severity of the COVID-19 pandemic and the resulting containment measures. We are closely monitoring the impacts of the COVID-19 pandemic on collections and cost-to-collect.
Results of Operations
Results of operations, in dollars and as a percentage of total revenues, adjusted by net allowances, were as follows (in (in thousands, except percentagespercentages)):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | 2020 | | | 2019 | | | 2021 | | 2020 |
Revenues | Revenues | | | | Revenues | | | |
Revenue from receivable portfolios | Revenue from receivable portfolios | $ | 357,365 | | | 123.6 | % | | $ | 311,158 | | | 89.7 | % | Revenue from receivable portfolios | $ | 338,018 | | | 81.1 | % | | $ | 357,365 | | | 123.6 | % |
Changes in expected current and future recoveries | Changes in expected current and future recoveries | (98,661) | | | (34.1) | % | | — | | | — | % | Changes in expected current and future recoveries | 44,537 | | | 10.7 | % | | (98,661) | | | (34.1) | % |
Servicing revenue | Servicing revenue | 28,680 | | | 9.9 | % | | 34,023 | | | 9.8 | % | Servicing revenue | 32,516 | | | 7.8 | % | | 28,680 | | | 9.9 | % |
Other revenues | Other revenues | 1,697 | | | 0.6 | % | | 529 | | | 0.1 | % | Other revenues | 1,766 | | | 0.4 | % | | 1,697 | | | 0.6 | % |
Total revenues | Total revenues | 289,081 | | | 100.0 | % | | 345,710 | | | 99.6 | % | Total revenues | 416,837 | | | 100.0 | % | | 289,081 | | | 100.0 | % |
Allowance reversals on receivable portfolios, net | | | | | | | 1,367 | | | 0.4 | % | |
Total revenues, adjusted by net allowances | | | | | | | 347,077 | | | 100.0 | % | |
| Operating expenses | Operating expenses | | | | | Operating expenses | | | | | | | |
Salaries and employee benefits | Salaries and employee benefits | 93,098 | | | 32.2 | % | | 91,834 | | | 26.5 | % | Salaries and employee benefits | 96,456 | | | 23.1 | % | | 93,098 | | | 32.2 | % |
Cost of legal collections | Cost of legal collections | 66,279 | | | 22.9 | % | | 49,027 | | | 14.1 | % | Cost of legal collections | 67,142 | | | 16.1 | % | | 66,279 | | | 22.9 | % |
General and administrative expenses | | General and administrative expenses | 32,148 | | | 7.7 | % | | 31,877 | | | 11.0 | % |
Other operating expenses | Other operating expenses | 27,164 | | | 9.4 | % | | 29,614 | | | 8.5 | % | Other operating expenses | 28,441 | | | 6.8 | % | | 27,164 | | | 9.4 | % |
Collection agency commissions | Collection agency commissions | 13,176 | | | 4.6 | % | | 16,002 | | | 4.6 | % | Collection agency commissions | 12,824 | | | 3.1 | % | | 13,176 | | | 4.6 | % |
General and administrative expenses | 31,877 | | | 11.0 | % | | 39,547 | | | 11.4 | % | |
Depreciation and amortization | Depreciation and amortization | 10,285 | | | 3.6 | % | | 9,995 | | | 2.9 | % | Depreciation and amortization | 11,512 | | | 2.8 | % | | 10,285 | | | 3.6 | % |
| Total operating expenses | Total operating expenses | 241,879 | | | 83.7 | % | | 236,019 | | | 68.0 | % | Total operating expenses | 248,523 | | | 59.6 | % | | 241,879 | | | 83.7 | % |
Income from operations | Income from operations | 47,202 | | | 16.3 | % | | 111,058 | | | 32.0 | % | Income from operations | 168,314 | | | 40.4 | % | | 47,202 | | | 16.3 | % |
Other expense | | | | | | | | |
Other (expense) income | | Other (expense) income | | | | | | | |
Interest expense | Interest expense | (54,662) | | | (18.9) | % | | (54,967) | | | (15.8) | % | Interest expense | (46,526) | | | (11.2) | % | | (54,662) | | | (18.9) | % |
Other income (expense) | 1,439 | | | 0.5 | % | | (2,976) | | | (0.9) | % | |
| Other (expense) income | | Other (expense) income | (55) | | | 0.0 | % | | 1,439 | | | 0.5 | % |
Total other expense | Total other expense | (53,223) | | | (18.4) | % | | (57,943) | | | (16.7) | % | Total other expense | (46,581) | | | (11.2) | % | | (53,223) | | | (18.4) | % |
(Loss) income before income taxes | (6,021) | | | (2.1) | % | | 53,115 | | | 15.3 | % | |
Income (loss) before income taxes | | Income (loss) before income taxes | 121,733 | | | 29.2 | % | | (6,021) | | | (2.1) | % |
Provision for income taxes | Provision for income taxes | (4,558) | | | (1.6) | % | | (3,673) | | | (1.1) | % | Provision for income taxes | (26,968) | | | (6.5) | % | | (4,558) | | | (1.6) | % |
Net (loss) income | (10,579) | | | (3.7) | % | | 49,442 | | | 14.2 | % | |
Net loss (income) attributable to noncontrolling interest | 125 | | | 0.1 | % | | (188) | | | (0.1) | % | |
Net (loss) income attributable to Encore Capital Group, Inc. stockholders | $ | (10,454) | | | (3.6) | % | | $ | 49,254 | | | 14.1 | % | |
Net income (loss) | | Net income (loss) | 94,765 | | | 22.7 | % | | (10,579) | | | (3.7) | % |
Net (income) loss attributable to noncontrolling interest | | Net (income) loss attributable to noncontrolling interest | (135) | | | (0.1) | % | | 125 | | | 0.1 | % |
Net income (loss) attributable to Encore Capital Group, Inc. stockholders | | Net income (loss) attributable to Encore Capital Group, Inc. stockholders | $ | 94,630 | | | 22.6 | % | | $ | (10,454) | | | (3.6) | % |
Results of Operations—Cabot Credit Management Limited
The following table summarizes the operating results contributed by CCM (which does not consolidate the results of its European affiliate Grove Europe S.á r.l.) during the periods presented (in thousands):
| | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
Total revenues | | | | | $ | 79,964 | | | $ | 129,012 | |
Total operating expenses | | | | | (75,239) | | | (70,499) | |
Income from operations | | | | | 4,725 | | | 58,513 | |
Interest expense | | | | | (30,495) | | | (28,955) | |
Other income (expense) | | | | | 1,700 | | | (302) | |
(Loss) income before income taxes | | | | | (24,070) | | | 29,256 | |
Benefit (provision) for income taxes | | | | | 2,094 | | | (5,431) | |
Net (loss) income | | | | | (21,976) | | | 23,825 | |
Net loss (income) attributable to noncontrolling interest | | | | | 125 | | | (188) | |
Net (loss) income attributable to Encore Capital Group, Inc. stockholders | | | | | $ | (21,851) | | | $ | 23,637 | |
Comparison of Results of Operations
Revenues
Our revenues primarily include revenue recognized from engaging in debt purchasing and recovery activities. Effective January 1, 2020, we adopted the CECL accounting standard. Under CECL, 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. Revenue generated by such activities primarily includes two components: (1) the accretion of the discount on the negative allowance due to the passage of time, which is included in “Revenue from receivable portfolios” and (2) changes in expected cash flows, which includes (a) the current period variances between actual cash collected and expected cash recoveries and (b) the present value change of expected future recoveries, and is presented in our consolidated statements of operations as “Changes toin expected current and future recoveries.”
Certain pools already fully recovered their cost basis and became zero basis portfolios (“ZBA”) prior to our adoption of CECL. We did not establish a negative allowance for these pools as we elected the Transition Resource Group for Credit Losses’ practical expedient to retain the integrity of these legacy pools. Similar to how we treated ZBA collections prior to the
adoption of CECL, all subsequent collections to the ZBA pools are recognized as ZBA revenue, which is included in revenue from receivable portfolios in our 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.
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 in Europe and LAAP. Other revenues alsomay include gains recognized on transfers of financial assets.
Under the previous accounting standard for purchased credit deteriorated assets, we incurred allowance charges when actual cash flows from our receivable portfolios underperform compared to our expectations or when there was a change in the timing of cash flows. We also recorded allowance reversals on pool groups that have historic allowance reserves when actual cash flows from these receivable portfolios outperform our expectations.
We have not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous accounting guidance. The following table summarizes revenues for the periods presented (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Revenue recognized from portfolio basis | $ | 340,815 | | | $ | 285,301 | | | $ | 55,514 | | | 19.5 | % |
ZBA revenue | 16,550 | | | 25,857 | | | (9,307) | | | (36.0) | % |
Revenue from receivable portfolios | 357,365 | | | 311,158 | | | 46,207 | | | 14.9 | % |
| | | | | | | |
Changes in expected current period recoveries | 10,315 | | | | | | | | | | |
Changes in expected future period recoveries | (108,976) | | | | | | | | | | |
Changes in expected current and future recoveries | (98,661) | | | | | | | |
| | | | | | | |
Servicing revenue | 28,680 | | | 34,023 | | | (5,343) | | | (15.7) | % |
Other revenues | 1,697 | | | 529 | | | 1,168 | | | 220.8 | % |
Total revenues | $ | 289,081 | | | | $ | 345,710 | | | | $ | (56,629) | | | (16.4) | % |
Allowance reversals on receivable portfolios, net(1) | | | | | 1,367 | | | | | | | |
Total revenues, adjusted by net allowances | | | | $ | 347,077 | | | | | | | |
________________________ | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 | | $ Change | | % Change |
Revenue recognized from portfolio basis | $ | 324,254 | | | $ | 340,815 | | | $ | (16,561) | | | (4.9) | % |
ZBA revenue | 13,764 | | | 16,550 | | | (2,786) | | | (16.8) | % |
Revenue from receivable portfolios | 338,018 | | | 357,365 | | | (19,347) | | | (5.4) | % |
| | | | | | | |
Changes in expected current period recoveries | 91,401 | | | 10,315 | | | 81,086 | | | 786.1 | % |
Changes in expected future period recoveries | (46,864) | | | (108,976) | | | 62,112 | | | (57.0) | % |
Changes in expected current and future recoveries | 44,537 | | | (98,661) | | | 143,198 | | | (145.1) | % |
| | | | | | | |
Servicing revenue | 32,516 | | | 28,680 | | | 3,836 | | | 13.4 | % |
Other revenues | 1,766 | | | 1,697 | | | 69 | | | 4.1 | % |
Total revenues | $ | 416,837 | | | $ | 289,081 | | | $ | 127,756 | | | 44.2 | % |
(1)Amount includes $2.3 million of allowance reversals for zero-basis portfolios.
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. Our revenues were unfavorablyfavorably impacted by foreign currency translation, primarily by the strengtheningweakening of the U.S. dollar against the British Pound by 1.8%7.2% during the three months ended March 31, 20202021 compared to the three months ended March 31, 2019.2020.
The increasedecrease in revenue recognized from portfolio basis during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was primarily due to (1) higherlower portfolio basis used to calculate revenue, (2)driven by higher expected total future cash flows resulting from a changecollections and lower volume of purchases in expected economic life of static pool groups based on a lifetime expected recovery model upon the adoption of CECL, which led to increased EIR, and (3) increased expected total future cash flows resulting from a change in our accounting policy for court costs, under our new accounting policy, all future expected cash flows, including the expected total recoveries in our legal channel, are included in the initial curve in the establishment of negative allowance, which in turn, increased the EIR.recent quarters.
As discussed above, ZBA revenue represents collections from our legacy ZBA pools, wepools. We expect our ZBA revenue to continue to decline as we collect on these legacy pools. Since our forecast period is on a rolling 15 year basis after the adoption of CECL, we do not expect to have new ZBA pools in the future.
Under CECL, changes toin expected current period recoveries represent over and under-performance in the reporting period. Due toCollections during the three months ended March 31, 2021 significantly outperformed the projected cash flows. We believe the collection over-performance was a result of our sustained improvements in portfolio collections driven by change in consumer behavior during the COVID-19 pandemic and our liquidation improvement initiatives,initiatives. The over-performance was also driven by higher collections as compared to the reduced near-term expected recoveries as a result of adjustments made to our projected cash flow forecast during 2020 associated with the COVID-19 pandemic.
While we now have additional information with respect to the impact on collections of the COVID-19 pandemic, the future outlook remains uncertain, and will continue to evolve depending on future developments, including the duration and spread of the pandemic and related actions taken by governments. When reassessing the future forecasts of expected lifetime recoveries during the three months ended March 31, 2020 outperformed2021, management considered historical and current collection performance, as well as the projected cash flows,uncertainty in economic forecasts in the geographies in which we operate, and believes that while some of the collection over-performance resulted in increased total expected recoveries for certain pool groups, the majority of the over-performance was partially offset by a slight shortfall ofshift forward in timing rather than an increase in total estimated remaining collections. Additionally, the macroeconomic driven consumer distress has improved; although it is still present and will likely impact our collections performance in March. We believe such shortfall was primarily the result of the COVID-19 pandemic.
During the three months ended March 31, 2020, we reassessed our future forecasts of expected recoveries of receivable portfolios based on our best estimate of the potential impact arising from the COVID-19 pandemic. The updated forecasts changed the timing of future recoveries by reducing the forecasted cash flows in 2020. The majority of the shortfall in near-term cash flows is expected to be recovered in 2021 and most of the rest of the shortfall is expected be recovered in subsequent periods.near future. As a result of a combination of the changeabove, we have updated our forecast, resulting in the
a net reduction of total amount of estimated remaining collections (“ERC”) was negligible. The delaywhich in expected future cash flows,turn, when discounted to present-value,present value, resulted in a provision for credit loss adjustment of approximately $109.0$46.9 million during the three months ended March 31, 2020.2021. The circumstances around this pandemic are evolving rapidly and will continue to impact our business and our estimation of expected recoveries in future periods. We will continue to closely monitor the COVID-19 situation closely and update our assumptions accordingly.
During the three months ended March 31, 2020, we recorded approximately $109.0 million in provision for credit loss adjustment due to significant uncertainty of the COVID-19 pandemic at that time.
The following tables summarize collections from purchased receivables, revenue from receivable portfolios, end of period receivable balance and other related supplemental data, by year of purchase (in thousands, except percentages):
| | | Three Months Ended March 31, 2020 | | | As of March 31, 2020 | | | Three Months Ended March 31, 2021 | | As of March 31, 2021 |
| | Collections | | Revenue from Receivable Portfolios | | Changes in Expected Current and Future Recoveries | | Investment in Receivable Portfolios | | Monthly EIR | | Collections | | Revenue from Receivable Portfolios | | Changes in Expected Current and Future Recoveries | | Investment in Receivable Portfolios | | Monthly EIR |
United States: | United States: | | | | | | | | | | United States: | | | | | | | | | |
ZBA | ZBA | $ | 15,274 | | | $ | 15,274 | | | $ | — | | | $ | — | | | — | % | ZBA | $ | 12,501 | | | $ | 12,501 | | | $ | — | | | $ | — | | | — | % |
2011 | 2011 | 7,249 | | | 6,865 | | | (215) | | | 2,021 | | | 88.6 | % | 2011 | 6,187 | | | 4,673 | | | 1,484 | | | 1,712 | | | 88.6 | % |
2012 | 2012 | 8,495 | | | 7,664 | | | (480) | | | 4,795 | | | 42.0 | % | 2012 | 6,306 | | | 5,011 | | | 993 | | | 3,735 | | | 42.0 | % |
2013 | 2013 | 17,687 | | | 18,136 | | | (3,984) | | | 11,564 | | | 40.5 | % | 2013 | 13,600 | | | 12,974 | | | 1,351 | | | 10,460 | | | 40.5 | % |
2014 | 2014 | 14,591 | | | 10,089 | | | (2,026) | | | 44,820 | | | 6.7 | % | 2014 | 9,475 | | | 6,671 | | | (726) | | | 30,417 | | | 6.7 | % |
2015 | 2015 | 18,302 | | | 9,309 | | | (1,079) | | | 73,901 | | | 3.8 | % | 2015 | 12,994 | | | 6,038 | | | 2,617 | | | 48,589 | | | 3.9 | % |
2016 | 2016 | 33,377 | | | 16,785 | | | (2,412) | | | 133,941 | | | 3.8 | % | 2016 | 26,378 | | | 11,181 | | | 7,020 | | | 89,806 | | | 4.0 | % |
2017 | 2017 | 55,435 | | | 30,850 | | | (1,103) | | | 178,176 | | | 5.2 | % | 2017 | 43,518 | | | 21,140 | | | 9,601 | | | 125,608 | | | 5.3 | % |
2018 | 2018 | 89,418 | | | 46,938 | | | (15,629) | | | 362,553 | | | 3.8 | % | 2018 | 68,358 | | | 29,587 | | | 10,694 | | | 238,022 | | | 3.8 | % |
2019 | 2019 | 102,534 | | | 72,048 | | | (2,104) | | | 601,892 | | | 3.8 | % | 2019 | 114,690 | | | 51,761 | | | 9,482 | | | 415,502 | | | 3.8 | % |
2020 | 2020 | 12,367 | | | 8,175 | | | (5,010) | | | 176,543 | | | 3.6 | % | 2020 | 113,142 | | | 54,252 | | | 21,108 | | | 457,785 | | | 3.7 | % |
2021 | | 2021 | 8,424 | | | 3,829 | | | 4,061 | | | 91,748 | | | 4.3 | % |
Subtotal | Subtotal | 374,729 | | | 242,133 | | | (34,042) | | | 1,590,206 | | | 4.4 | % | Subtotal | 435,573 | | | 219,618 | | | 67,685 | | | 1,513,384 | | | 4.4 | % |
Europe: | Europe: | | | | | | | | | Europe: | | | | | | | | |
ZBA | ZBA | 58 | | | 58 | | | — | | | — | | | — | % | ZBA | 34 | | | 34 | | | — | | | — | | | — | % |
2013 | 2013 | 25,259 | | | 22,262 | | | (6,306) | | | 215,495 | | | 3.2 | % | 2013 | 24,748 | | | 22,383 | | | (13,588) | | | 216,432 | | | 3.2 | % |
2014 | 2014 | 23,271 | | | 17,887 | | | (4,972) | | | 186,139 | | | 3.0 | % | 2014 | 22,477 | | | 17,590 | | | (7,411) | | | 185,531 | | | 3.1 | % |
2015 | 2015 | 15,173 | | | 11,189 | | | (2,096) | | | 143,275 | | | 2.4 | % | 2015 | 14,996 | | | 10,891 | | | (5,407) | | | 143,115 | | | 2.4 | % |
2016 | 2016 | 13,102 | | | 11,259 | | | (11,028) | | | 122,994 | | | 2.8 | % | 2016 | 13,996 | | | 10,679 | | | (939) | | | 125,215 | | | 2.8 | % |
2017 | 2017 | 23,494 | | | 15,696 | | | (9,692) | | | 260,314 | | | 1.9 | % | 2017 | 23,146 | | | 14,584 | | | (2,160) | | | 249,313 | | | 1.8 | % |
2018 | 2018 | 22,658 | | | 15,662 | | | (22,493) | | | 305,824 | | | 1.6 | % | 2018 | 21,712 | | | 14,296 | | | (3,007) | | | 294,406 | | | 1.6 | % |
2019 | 2019 | 20,106 | | | 14,292 | | | (7,633) | | | 240,124 | | | 1.8 | % | 2019 | 23,979 | | | 13,443 | | | 1,438 | | | 234,835 | | | 1.8 | % |
2020 | 2020 | 982 | | | 1,400 | | | 249 | | | 28,086 | | | 2.6 | % | 2020 | 15,121 | | | 8,703 | | | 5,801 | | | 124,989 | | | 2.3 | % |
2021 | | 2021 | 2,392 | | | 2,013 | | | 864 | | | 76,456 | | | 1.9 | % |
Subtotal | Subtotal | 144,103 | | | 109,705 | | | (63,971) | | | 1,502,251 | | | 2.3 | % | Subtotal | 162,601 | | | 114,616 | | | (24,409) | | | 1,650,292 | | | 2.2 | % |
Other geographies: | Other geographies: | | | | | | | | | Other geographies: | | | | | | | | |
ZBA | ZBA | 1,218 | | | 1,218 | | | — | | | — | | | — | % | ZBA | 1,229 | | | 1,229 | | | — | | | — | | | — | % |
2014 (1) | 2014 (1) | 1,174 | | | 545 | | | (19) | | | 47,819 | | | 100.2 | % | 2014(1) | 1,252 | | | 396 | | | 141 | | | 44,413 | | | 98.2 | % |
2015 | 1,557 | | | 941 | | | 76 | | | 4,544 | | | 17.1 | % | |
2015(1) | | 2015(1) | 1,192 | | | 542 | | | 368 | | | 3,076 | | | 96.7 | % |
2016 | 2016 | 971 | | | 686 | | | (249) | | | 3,391 | | | 5.1 | % | 2016 | 635 | | | 305 | | | 144 | | | 1,261 | | | 6.7 | % |
2017 | 1,875 | | | 1,140 | | | (323) | | | 11,586 | | | 6.1 | % | |
2017(1) | | 2017(1) | 2,269 | | | 750 | | | 306 | | | 9,128 | | | 6.2 | % |
2018 | 2018 | 1,580 | | | 955 | | | (120) | | | 5,986 | | | 3.7 | % | 2018 | 1,640 | | | 535 | | | 292 | | | 3,958 | | | 3.7 | % |
2019 | 2019 | 72 | | | 42 | | | (13) | | | 235 | | | 4.6 | % | 2019 | 70 | | | 27 | | | 10 | | | 166 | | | 4.6 | % |
2020 | — | | | — | | | — | | | — | | | — | % | |
| Subtotal | Subtotal | 8,447 | | | 5,527 | | | (648) | | | 73,561 | | | 67.7 | % | Subtotal | 8,287 | | | 3,784 | | | 1,261 | | | 62,002 | | | 7.9 | % |
Total | Total | $ | 527,279 | | | $ | 357,365 | | | $ | (98,661) | | | $ | 3,166,018 | | | 3.4 | % | Total | $ | 606,461 | | | $ | 338,018 | | | $ | 44,537 | | | $ | 3,225,678 | | | 3.4 | % |
________________________
(1)Portfolio balance includes non-accrual pool groups. The EIR presented is only for pool groups that accrete portfolio revenue.
| | | Three Months Ended March 31, 2019 | | | As of March 31, 2019 | | | Three Months Ended March 31, 2020 | | As of March 31, 2020 |
| | Collections | | Revenue from Receivable Portfolios | | Net Reversal (Portfolio Allowance) | | Unamortized Balances | | Monthly EIR | | Collections | | Revenue from Receivable Portfolios | | Changes in Expected Current and Future Recoveries | | Investment in Receivable Portfolios | | Monthly EIR |
United States: | United States: | | | | | | | | | | United States: | | | | | | | | | |
ZBA(1) | $ | 25,531 | | | $ | 23,270 | | | $ | 2,267 | | | $ | — | | | — | % | |
ZBA | | ZBA | $ | 15,274 | | | $ | 15,274 | | | $ | — | | | $ | — | | | — | % |
2011 | 2011 | 2,764 | | | 2,280 | | | — | | | 2,422 | | | 27.4 | % | 2011 | 7,249 | | | 6,865 | | | (215) | | | 2,021 | | | 88.6 | % |
2012 | 2012 | 7,336 | | | 6,096 | | | 273 | | | 8,994 | | | 20.2 | % | 2012 | 8,495 | | | 7,664 | | | (480) | | | 4,795 | | | 42.0 | % |
2013 | 2013 | 22,034 | | | 19,179 | | | (52) | | | 22,838 | | | 25.6 | % | 2013 | 17,687 | | | 18,136 | | | (3,984) | | | 11,564 | | | 40.5 | % |
2014 | 2014 | 19,667 | | | 10,822 | | | 1,090 | | | 65,813 | | | 5.0 | % | 2014 | 14,591 | | | 10,089 | | | (2,026) | | | 44,820 | | | 6.7 | % |
2015 | 2015 | 24,968 | | | 10,196 | | | — | | | 109,436 | | | 2.8 | % | 2015 | 18,302 | | | 9,309 | | | (1,079) | | | 73,901 | | | 3.8 | % |
2016 | 2016 | 47,454 | | | 20,653 | | | (896) | | | 208,176 | | | 3.0 | % | 2016 | 33,377 | | | 16,785 | | | (2,412) | | | 133,941 | | | 3.8 | % |
2017 | 2017 | 77,294 | | | 35,626 | | | — | | | 279,667 | | | 3.8 | % | 2017 | 55,435 | | | 30,850 | | | (1,103) | | | 178,176 | | | 5.2 | % |
2018 | 2018 | 94,281 | | | 52,674 | | | — | | | 527,432 | | | 3.1 | % | 2018 | 89,418 | | | 46,938 | | | (15,629) | | | 362,553 | | | 3.8 | % |
2019 | 2019 | 8,265 | | | 5,892 | | | — | | | 171,684 | | | 3.2 | % | 2019 | 102,534 | | | 72,048 | | | (2,104) | | | 601,892 | | | 3.8 | % |
2020 | | 2020 | 12,367 | | | 8,175 | | | (5,010) | | | 176,543 | | | 3.6 | % |
Subtotal | Subtotal | 329,594 | | | 186,688 | | | 2,682 | | | 1,396,462 | | | 3.8 | % | Subtotal | 374,729 | | | 242,133 | | | (34,042) | | | 1,590,206 | | | 4.4 | % |
Europe: | Europe: | | | | | | | | | Europe: | | | | | | | | |
ZBA(1) | 91 | | | 91 | | | — | | | — | | | — | % | |
ZBA | | ZBA | 58 | | | 58 | | | — | | | — | | | — | % |
2013 | 2013 | 30,110 | | | 23,297 | | | — | | | 247,509 | | | 3.1 | % | 2013 | 25,259 | | | 22,262 | | | (6,306) | | | 215,495 | | | 3.2 | % |
2014 | 2014 | 28,120 | | | 19,679 | | | (175) | | | 228,433 | | | 2.7 | % | 2014 | 23,271 | | | 17,887 | | | (4,972) | | | 186,139 | | | 3.0 | % |
2015 | 2015 | 19,509 | | | 11,147 | | | (256) | | | 177,460 | | | 2.0 | % | 2015 | 15,173 | | | 11,189 | | | (2,096) | | | 143,275 | | | 2.4 | % |
2016 | 2016 | 16,823 | | | 11,279 | | | (29) | | | 157,254 | | | 2.4 | % | 2016 | 13,102 | | | 11,259 | | | (11,028) | | | 122,994 | | | 2.8 | % |
2017 | 2017 | 32,302 | | | 17,366 | | | — | | | 333,760 | | | 1.7 | % | 2017 | 23,494 | | | 15,696 | | | (9,692) | | | 260,314 | | | 1.9 | % |
2018 | 2018 | 30,079 | | | 18,991 | | | — | | | 418,012 | | | 1.5 | % | 2018 | 22,658 | | | 15,662 | | | (22,493) | | | 305,824 | | | 1.6 | % |
2019 | 2019 | 3,766 | | | 2,993 | | | — | | | 83,741 | | | 1.6 | % | 2019 | 20,106 | | | 14,292 | | | (7,633) | | | 240,124 | | | 1.8 | % |
2020 | | 2020 | 982 | | | 1,400 | | | 249 | | | 28,086 | | | 2.6 | % |
Subtotal | Subtotal | 160,800 | | | 104,843 | | | (460) | | | 1,646,169 | | | 2.1 | % | Subtotal | 144,103 | | | 109,705 | | | (63,971) | | | 1,502,251 | | | 2.3 | % |
Other geographies: | Other geographies: | | | | | | | | | Other geographies: | | | | | | | | |
ZBA(1) | 2,542 | | | 2,542 | | | — | | | — | | | — | % | |
2014 | 945 | | | 4,654 | | | — | | | 64,928 | | | 2.4 | % | |
ZBA | | ZBA | 1,218 | | | 1,218 | | | — | | | — | | | — | % |
2014 (1) | | 2014 (1) | 1,174 | | | 545 | | | (19) | | | 47,819 | | | 100.2 | % |
2015 | 2015 | 5,410 | | | 4,418 | | | — | | | 18,667 | | | 7.3 | % | 2015 | 1,557 | | | 941 | | | 76 | | | 4,544 | | | 17.1 | % |
2016 | 2016 | 4,239 | | | 2,067 | | | 12 | | | 24,867 | | | 2.6 | % | 2016 | 971 | | | 686 | | | (249) | | | 3,391 | | | 5.1 | % |
2017 | 2017 | 4,757 | | | 2,927 | | | — | | | 30,071 | | | 3.2 | % | 2017 | 1,875 | | | 1,140 | | | (323) | | | 11,586 | | | 6.1 | % |
2018 | 2018 | 5,131 | | | 2,864 | | | (867) | | | 26,284 | | | 3.4 | % | 2018 | 1,580 | | | 955 | | | (120) | | | 5,986 | | | 3.7 | % |
2019 | 2019 | 435 | | | 155 | | | — | | | 4,139 | | | 3.5 | % | 2019 | 72 | | | 42 | | | (13) | | | 235 | | | 4.6 | % |
| Subtotal | Subtotal | 23,459 | | | 19,627 | | | (855) | | | 168,956 | | | 3.3 | % | Subtotal | 8,447 | | | 5,527 | | | (648) | | | 73,561 | | | 67.7 | % |
Total | Total | $ | 513,853 | | | $ | 311,158 | | | $ | 1,367 | | | $ | 3,211,587 | | | 2.9 | % | Total | $ | 527,279 | | | $ | 357,365 | | | $ | (98,661) | | | $ | 3,166,018 | | | 3.4 | % |
________________________
(1)Zero basis revenue typically has a 100% revenue recognition rate. However, collections on ZBAPortfolio balance includes non-accrual pool groups. The EIR presented is only for pool groups where a valuation allowance remains must first be recorded as an allowance reversal until the allowance for that pool group is zero. Once the entire valuation allowance is reversed, the revenue recognition rate will become 100%.accrete portfolio revenue.
The decreaseincrease in servicing revenues was primarily attributable to the sale of Baycorp in August 2019. Through Baycorp, we earned servicing revenues during the three months ended March 31, 2019,2021 as compared to the decreasethree months ended March 31, 2020 was also driven by unfavorableprimarily attributable to the favorable impact of foreign currency translation, which was primarily the result of the strengtheningweakening of the U.S. dollar against the British Pound.
Other revenues was dueincreased during the three months ended March 31, 2021 as compared to the increase in salethree months ended March 31, 2020, primarily driven by the favorable impact of real estate assets that are acquired as aforeign currency translation, which was primarily the result of our investments in non-performing secured residential mortgage portfolios in Europe and LAAP.the weakening of the U.S. dollar against the British Pound.
Operating Expenses
The following table summarizes operating expenses for the periods presented (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Salaries and employee benefits | $ | 93,098 | | | $ | 91,834 | | | $ | 1,264 | | | 1.4 | % |
Cost of legal collections | 66,279 | | | 49,027 | | | 17,252 | | | 35.2 | % |
Other operating expenses | 27,164 | | | 29,614 | | | (2,450) | | | (8.3) | % |
Collection agency commissions | 13,176 | | | 16,002 | | | (2,826) | | | (17.7) | % |
General and administrative expenses | 31,877 | | | 39,547 | | | (7,670) | | | (19.4) | % |
Depreciation and amortization | 10,285 | | | 9,995 | | | 290 | | | 2.9 | % |
Total operating expenses | $ | 241,879 | | | $ | 236,019 | | | $ | 5,860 | | | 2.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 | | $ Change | | % Change |
Salaries and employee benefits | $ | 96,456 | | | $ | 93,098 | | | $ | 3,358 | | | 3.6 | % |
Cost of legal collections | 67,142 | | | 66,279 | | | 863 | | | 1.3 | % |
General and administrative expenses | 32,148 | | | 31,877 | | | 271 | | | 0.9 | % |
Other operating expenses | 28,441 | | | 27,164 | | | 1,277 | | | 4.7 | % |
Collection agency commissions | 12,824 | | | 13,176 | | | (352) | | | (2.7) | % |
Depreciation and amortization | 11,512 | | | 10,285 | | | 1,227 | | | 11.9 | % |
Total operating expenses | $ | 248,523 | | | $ | 241,879 | | | $ | 6,644 | | | 2.7 | % |
Our operating results are impacted by foreign currency translation, which represents the effect of translating operating results where the functional currency is different than our U.S. dollar reporting currency. The strengthening of the U.S. dollar relative to other foreign currencies has a favorable impact on our international operating expenses, and the weakening of the U.S. dollar relative to other foreign currencies has an unfavorable impact on our international operating expenses. Our operating expenses were favorablyunfavorably impacted by foreign currency translation, primarily by the strengtheningweakening of the U.S. dollar against the British Pound by 1.8%approximately 7.2% for the three months ended March 31, 20202021 as compared to the three months ended March 31, 2019.2020.
Operating expenses are explained in more detail as follows:
Salaries and Employee Benefits
The increase in salaries and employee benefits was primarily due to the following reasons:
•Increase in salaries and employee benefits at our domestic sites as part of our initiative to increase collections capacity; andoverall headcount;
•Increased stock compensation due to larger expense reversals in the prior period;
•Partially offset by a decrease in headcount in other geographies as a result of the sale of Baycorp and the favorableThe unfavorable impact of foreign currency translation, primarily by the strengtheningweakening of the U.S. dollar against the British Pound.Pound during the three months ended March 31, 2021 compared to the three months ended March 31, 2020;
•Partially offset by reduced stock-based compensation expense as compared to the same period in the prior year, due to acceleration of certain equity grants and true-up adjustment for certain performance awards recognized in the prior year.
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. Effective January 1, 2020, we no longer capitalize upfront court costs and recognize a portion of court costs as expense based on a loss-rate methodology, but rather, we expense all court costs as incurred. 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.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Court costs | $ | 41,355 | | | | $ | 20,479 | | | $ | 20,876 | | | 101.9 | % |
Legal collection fees | 24,924 | | | | 28,548 | | | (3,624) | | | (12.7) | % |
Total cost of legal collections | $ | 66,279 | | | | $ | 49,027 | | | $ | 17,252 | | | 35.2 | % |
The following table summarizes our cost of legal collections during the periods presented (in thousands, except percentages): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 | | $ Change | | % Change |
Court costs | $ | 41,682 | | | $ | 41,355 | | | $ | 327 | | | 0.8 | % |
Legal collection fees | 25,460 | | | 24,924 | | | 536 | | | 2.2 | % |
Total cost of legal collections | $ | 67,142 | | | $ | 66,279 | | | $ | 863 | | | 1.3 | % |
Cost of legal collections slightly increased driven by increased legal channel collections. Beginning in late March of 2020, our legal collection channel spending reduced substantially due to court closures in certain jurisdictions as a result of the COVID-19 pandemic, the legal collection channel spending has gradually increased and are now back to historical levels.
General and Administrative Expenses
The increase in cost of legal collectionsgeneral and administrative expense was primarily due to the following reasons:
•No longer capitalizing upfront court costs but rather expensing all court costsIncreased information technology related expense as incurred;we continue to invest in network security under the current work-from-home environment due to the COVID-19 pandemic;
•The unfavorable impact of foreign currency translation, primarily by the weakening of the U.S. dollar against the British Pound during the three months ended March 31, 2021 compared to the three months ended March 31, 2020;
•Partially offset by a decline in legal collection fees.reduced travel and facilities expenses.
Other Operating Expenses
The decreaseincrease in other operating expenses was primarily due to the following reasons:
Increased postage and printing expenses primarily at our domestic operations driven by increased interactions with consumers via mail; •The favorableunfavorable impact of foreign currency translation, primarily by the strengtheningweakening of the U.S. dollar against the British Pound;
•Reduced expenditures for temporary services; and
•Lower collection expenses primarily due to the sale of Baycorp in August 2019.Pound.
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 Latin America and vary from period to period depending on, among other things, the number of accounts placed with an agency versus accounts collected internally. Commissions, as a percentage of collections in this channel alsoCommission rates vary from period to period 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.
The decrease in collections agency commissions was primarily due to the following reasons:
•Other geographies decreased due to progressive decrement of portfolio collections during the period; and
•Europe decreased due to the favorable impact of foreign currency translation, primarily by the strengthening of the U.S. dollar against the British Pound.
General and Administrative Expenses
The decrease in general and administrative expense was primarily due to the following reasons:
•Reduced consulting fees and infrastructure costs at our domestic sites;
•Lower general and administrative expenses due to the sale of Baycorp in August 2019; and
•The favorable impact of foreign currency translation, primarily by the strengthening of the U.S. dollar against the British Pound;
Depreciation and Amortization
The increase in depreciation and amortization expense was primarily due to the following reasons:
•Increased depreciation expense primarily incurred at our domesticU.S. facilities;
•Partially offset by the favorableThe unfavorable impact of foreign currency translation, primarily by the strengtheningweakening of the U.S. dollar against the British Pound.Pound during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.
Interest Expense
The following table summarizestables summarize our interest expense (in thousands)thousands, except percentages):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | $ Change | | % Change | | 2021 | | 2020 | | $ Change | | % Change |
Stated interest on debt obligations | Stated interest on debt obligations | $ | 48,755 | | | $ | 48,318 | | | $ | 437 | | | 0.9 | % | Stated interest on debt obligations | $ | 41,776 | | | $ | 48,755 | | | $ | (6,979) | | | (14.3) | % |
Amortization of loan costs | 2,778 | | | 3,326 | | | (548) | | | (16.5) | % | |
Amortization of debt issuance costs | | Amortization of debt issuance costs | 4,397 | | | 2,778 | | | 1,619 | | | 58.3 | % |
Amortization of debt discount | Amortization of debt discount | 3,129 | | | 3,323 | | | (194) | | | (5.8) | % | Amortization of debt discount | 353 | | | 3,129 | | | (2,776) | | | (88.7) | % |
Total interest expense | Total interest expense | $ | 54,662 | | | $ | 54,967 | | | $ | (305) | | | (0.6) | % | Total interest expense | $ | 46,526 | | | $ | 54,662 | | | $ | (8,136) | | | (14.9) | % |
In September 2020, we entered into various transactions, agreements and amendments related to our borrowings and completed the implementation of our new global funding structure. In November and December 2020, we completed two offerings of senior secured notes, partially redeemed our Cabot senior secured notes due in 2023 and fully redeemed our Cabot floating rate notes due 2024. These refinancing transactions successfully reduced the interest rates on our outstanding borrowings.
The decrease in interest expense during the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was primarily due to the following reasons:
•FavorableLower average debt balances;
•Decreased interest rates as a result of various refinancing transactions;
•Effective January 1, 2021, we adopted a new accounting standard for our convertible and exchangeable notes and now recognize interest expense at the stated coupon rate of interest, rather than the higher effective interest rate;
•Partially offset by the unfavorable impact of foreign currency translation, primarily by the strengtheningweakening of the U.S. dollar against the British Pound;Pound and increased amortization of loan fees and other loan costs as a result of higher capitalized debt issuance costs.
•Lower balances on the Encore Term Loan Facility, Encore Senior Secured Notes, and Cabot Credit Facilities;
•Decrease in London Interbank Offered Rate (“LIBOR”) which resulted in decreased interest expense for the Encore Revolving Credit Facility; and
•Partially offset by the effect from higher balances on the Encore Revolving Credit Facility.
Other (Expense) 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 expense was $0.1 million and other income was $1.4 million during the three months ended March 31, 2020 and other expense was $3.0 million during the three months ended March 31, 2019. The change in other income (expense) was primarily due to the following reasons:2021 and 2020, respectively.
•Other income recognized during the three months ended March 31, 2020 based onprimarily included the fair value changes for currency exchange forward contracts which arewere not designated as hedge instruments for accounting purposes;
•Other expense recognized during the three months ended March 31, 2019 primarily due to foreign currency exchange losses.purposes.
Provision for Income Taxes
We recorded income tax expense of $4.6 million on consolidated loss beforeProvision for income taxes of $6.0 million duringand effective tax rate are as follows for the periods presented ($in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
2021 | | 2020 |
Provision for income taxes | $ | 26,968 | | | $ | 4,558 | |
Effective tax rate | 22.2 | % | | (75.7) | % |
For the three months ended March 31, 2020, the difference between our effective tax rate and income tax expense of $3.7 million on consolidated income before income taxes of $53.1 million during the three months ended March 31, 2019. The income tax expense for the three months ended March 31, 202021% federal statutory rate was primarily attributable to the recording of valuation allowances in certain foreign jurisdictions that incurred pre-tax losses. The income tax expense for the three months ended March 31, 2019 included a tax benefit of approximately $9.1 million relateddue to a tax accounting method change for revenue reporting approved by the Internal Revenue Service during the period.
The effective tax rates for the respective periods are shown below:
| | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
Federal provision | | | | | 21.0 | % | | 21.0 | % |
State provision | | | | | (15.6) | % | | 2.5 | % |
Foreign income taxed at different rates(1) | | | | | (3.2) | % | | (0.9) | % |
Change in valuation allowance(2) | | | | | (66.5) | % | | 1.9 | % |
Change in tax accounting method(3) | | | | | — | % | | (17.1) | % |
Foreign currency remeasurement | | | | | (6.4) | % | | 0.2 | % |
Permanent items(4) | | | | | (1.7) | % | | 0.1 | % |
Other | | | | | (3.3) | % | | (0.8) | % |
Effective tax rate | | | | | (75.7) | % | | 6.9 | % |
________________________
(1)Relates primarily to the lower tax rates on the income or loss attributable to international operations.
(2)Change in valuation allowance during 2020,over consolidated pre-tax loss for the period, recognized in the period under the discrete method, is attributable to losses incurred at certain foreign subsidiaries with cumulative operating losses for tax purposes.
(3)In 2019, includes tax benefit resulting from tax accounting method change.
(4)Represents a provision for nondeductible expenses.
method. We utilized the discrete effective tax rate method (“discrete method”) for recording income taxes for the three months ended March 31, 2020. We believe the use of the discrete method is more appropriate than the application of the estimated annual effective tax rate (“AETR”) methodduring 2020 due to uncertainty in estimating annual pre-tax earnings primarily due to the ongoing COVID-19 pandemic. We will re-evaluatere-evaluated the use of the discrete method each quarter until it is deemed appropriate tomethodology in calculating income taxes and return to using the AETR method.
Our incomeestimated annual effective tax expense includes deferred income taxes arising from temporary differences between the financial reporting and tax bases of assets and liabilities, and net operating losses. We regularly evaluate the realizability of our deferred income tax assets and assess the need for a valuation allowance, including considerations of whether it is more likely than not that the deferred income tax assets will be realized. The assessment of realizability requires significant judgement and our projections of future taxable income required to fully realize the recorded amount of deferred tax assets reflect numerous assumptions about our operating business and investments, and are subject to change as conditions change specific to our operating business, investments or general economic conditions. Adverse changes in certain jurisdictions could result in the need to record or increase the valuation allowance, resulting in a charge against earnings in the respective period.
Our subsidiary in Costa Rica is operating under a 100% tax holiday through December 31, 2026. The impact of the tax holiday in Costa Rica forrate method during the three months ended March 31, 2020 and 2019, was immaterial.
We had gross unrecognized tax benefits, inclusive of penalties and interest, of $8.2 million as of March 31, 2020. These unrecognized tax benefits, if recognized, would result in a net tax benefit of $7.6 million as of March 31, 2020. There was no material change in gross unrecognized tax benefits from December 31, 2019.
We have 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 March 31, 2020 was approximately $117.1 million. Such undistributed earnings are considered permanently reinvested. We do not provide for deferred taxes on translation adjustments on unremitted earnings under the indefinite reversal 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 we do not consider under the indefinite reversal exemption have no material undistributed earnings or outside basis differences and therefore no U.S. taxes have been provided.2021.
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, and 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 Earnings (Loss) Per Share. Management uses non-GAAP adjusted net income (loss) and adjusted earnings (loss) per share attributable to Encore to assess operating performance and to highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. Adjusted net income (loss) attributable to Encore excludes non-cash interest and issuance cost amortization relating to our convertible notes and exchangeable notes, acquisition, integration and restructuring related expenses, amortization of certain acquired intangible assets and other charges or gains that are not indicative of ongoing operations.
The following table provides a reconciliation between net income (loss) and diluted earnings (loss) per share attributable to Encore calculated in accordance with GAAP, to adjusted net income (loss) and adjusted earnings (loss) per share attributable to Encore, respectively (in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | | | | | |
| 2020 | | | | | | 2019 | | | | |
| $ | | Per Diluted Share | | | | $ | | Per Diluted Share | | |
GAAP net (loss) income attributable to Encore, as reported | $ | (10,454) | | | $ | (0.33) | | | | | $ | 49,254 | | | $ | 1.57 | | | |
Adjustments: | | | | | | | | | | | |
Convertible notes and exchangeable notes non-cash interest and issuance cost amortization | 3,977 | | | 0.13 | | | | | 4,002 | | | 0.13 | | | |
Acquisition, integration and restructuring related expenses(1) | 187 | | | 0.01 | | | | | 1,208 | | | 0.04 | | | |
Amortization of certain acquired intangible assets(2) | 1,643 | | | 0.05 | | | | | 1,877 | | | 0.06 | | | |
Income tax effect of above non-GAAP adjustments and certain discrete tax items(3) | (1,250) | | | (0.05) | | | | | (1,383) | | | (0.05) | | | |
Change in tax accounting method(4) | — | | | — | | | | | (9,070) | | | (0.29) | | | |
Adjusted net (loss) income attributable to Encore | $ | (5,897) | | | $ | (0.19) | | | | | $ | 45,888 | | | $ | 1.46 | | | |
________________________
(1)Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore, adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(2)As we acquire debt solution service providers around the world, we also acquire intangible assets, such as trade names and customer relationships. 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. As a result, the amortization of certain acquired intangible assets is excluded from our adjusted income (loss) attributable to Encore and adjusted income (loss) per share.
(3)Amount represents the total income tax effect of the adjustments, which is generally calculated based on the applicable marginal tax rate of the jurisdiction in which the portion of the adjustment occurred. Additionally, we adjust for certain discrete tax items that are not indicative of our ongoing operations.
(4)Amount represents the benefit from the tax accounting method change related to revenue reporting. We adjust for certain discrete tax items that are not indicative of our ongoing operations.
Adjusted EBITDA. Management utilizes adjusted EBITDA (defined as net income (loss) before discontinued operations, interest income and expense, taxes, depreciation and amortization, stock-based compensation expenses, acquisition, integration and restructuring related expenses, and other charges or gains that are not indicative of ongoing operations), in the evaluation of our operating performance. Adjusted EBITDA for the periods presented is as follows (in thousands):
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| 2020 | | 2019 | | 2021 | | 2020 | |
GAAP net (loss) income, as reported | | $ | (10,579) | | | $ | 49,442 | | |
GAAP net income, as reported | | GAAP net income, as reported | $ | 94,765 | | | $ | (10,579) | | |
Adjustments: | Adjustments: | | | Adjustments: | | |
Interest expense | Interest expense | | 54,662 | | | 54,967 | | Interest expense | 46,526 | | | 54,662 | | |
Interest income | Interest income | | (1,000) | | | (1,022) | | Interest income | (474) | | | (1,000) | | |
Provision for income taxes | Provision for income taxes | | 4,558 | | | 3,673 | | Provision for income taxes | 26,968 | | | 4,558 | | |
Depreciation and amortization | Depreciation and amortization | | 10,285 | | | 9,995 | | Depreciation and amortization | 11,512 | | | 10,285 | | |
| Stock-based compensation expense | Stock-based compensation expense | | 4,527 | | | 1,826 | | Stock-based compensation expense | 3,405 | | | 4,527 | | |
Acquisition, integration and restructuring related expenses(1) | Acquisition, integration and restructuring related expenses(1) | | 187 | | | 1,208 | | Acquisition, integration and restructuring related expenses(1) | — | | | 187 | | |
| Adjusted EBITDA | Adjusted EBITDA | | $ | 62,640 | | | $ | 120,089 | | Adjusted EBITDA | $ | 182,702 | | | $ | 62,640 | | |
| Collections applied to principal balance(2) | Collections applied to principal balance(2) | | $ | 268,575 | | | $ | 201,328 | | Collections applied to principal balance(2) | $ | 229,510 | | | $ | 268,575 | | |
________________________
(1)Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore, adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(2)Amount represents (a) gross collections from receivable portfolios less the sum of (b) revenue from receivable portfolios and (c) changes in expected recoveriesrecoveries. For consistency with the Company debt covenant reporting, for 2020. Amount represents (a) grossperiods subsequent to June 30, 2020, the collections applied to principal balance also includes proceeds applied to basis from receivable portfolios less the sumsales of (b) revenue from receivable portfoliosREO assets and (c) allowance charges or allowance reversals on receivable portfolios for 2019.related activities; prior period amounts have not been adjusted to reflect this change as such amounts were immaterial.
Adjusted Operating Expenses. Management utilizes adjusted operating expenses in order to facilitate a comparison of approximate costs to cash collections for our portfolio purchasing and recovery business. Adjusted operating expenses for our portfolio purchasing and recovery business are calculated by starting with GAAP total operating expenses and backing out operating expenses related to non-portfolio purchasing and recovery business, acquisition, integration and restructuring related operating expenses, stock-based compensation expense, settlement fees and related administrative expenses and other charges or gains that are not indicative of ongoing operations. Adjusted operating expenses related to our portfolio purchasing and recovery business for the periods presented are as follows (in thousands):
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| 2020 | | 2019 | | 2021 | | 2020 | |
GAAP total operating expenses, as reported | GAAP total operating expenses, as reported | | $ | 241,879 | | | $ | 236,019 | | GAAP total operating expenses, as reported | $ | | $ | 241,879 | | |
Adjustments: | Adjustments: | | | Adjustments: | | |
Operating expenses related to non-portfolio purchasing and recovery business(1) | Operating expenses related to non-portfolio purchasing and recovery business(1) | | (41,489) | | | (46,082) | | Operating expenses related to non-portfolio purchasing and recovery business(1) | (42,653) | | | (41,489) | | |
| Stock-based compensation expense | Stock-based compensation expense | | (4,527) | | | (1,826) | | Stock-based compensation expense | (3,405) | | | (4,527) | | |
Acquisition, integration and restructuring related expenses(2) | Acquisition, integration and restructuring related expenses(2) | | (187) | | | (1,208) | | Acquisition, integration and restructuring related expenses(2) | — | | | (187) | | |
| Adjusted operating expenses related to portfolio purchasing and recovery business | Adjusted operating expenses related to portfolio purchasing and recovery business | | $ | 195,676 | | | $ | 186,903 | | Adjusted operating expenses related to portfolio purchasing and recovery business | $ | 202,465 | | | $ | 195,676 | | |
________________________
(1)Operating expenses related to non-portfolio purchasing and recovery business include operating expenses from other operating segments that primarily engage in fee-based business, as well as corporate overhead not related to our portfolio purchasing and recovery business.
(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.
Cost per Dollar Collected
We utilize adjusted operating expenses in order to facilitate a comparison of approximate costs to cash collections from purchased receivables for our portfolio purchasing and recovery business. The following table summarizes our cost per dollar collected (defined as adjusted operating expenses as a percentage of collections from purchased receivables) by geographic location during the periods presented:
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | | 2021 | | 2020 | |
United States | United States | | 39.5 | % | | 39.6 | % | United States | 34.5 | % | | 39.5 | % | |
Europe | Europe | | 29.9 | % | | 27.6 | % | Europe | 29.4 | % | | 29.9 | % | |
Other geographies | Other geographies | | 52.6 | % | | 51.2 | % | Other geographies | 52.1 | % | | 52.6 | % | |
Overall cost per dollar collected | Overall cost per dollar collected | | 37.1 | % | | 36.4 | % | Overall cost per dollar collected | 33.4 | % | | 37.1 | % | |
As discussed inCost-to-collect decreased during the “Accounting Policy Update” section in “Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies” of the notes to the consolidated financial statements, effective January 1, 2020, we expense all court costs as incurred and no longer capitalize such costs as Deferred Court Costs based on a loss-rate methodology. This accounting policy change increased the cost-to-collect metric as compared to prior periods because the court costs expense recognized in prior periods only represented costs we did not expect to recover. The accounting policy change has no impact on the amount of court cost payments incurred.
The change in cost per dollar collected was primarily due to the following reasons:
•Cost-to-collect increased due to the impact of change in accounting policy relating to court costs as discussed above;
•Despite the above increase due to accounting policy change, cost-to-collect in the United States decreasedpresented, due to a combination of (1) continued improvement in operational efficiencies in the collection process and (2) collection mix shifting towards non-legal collection, which has a lower cost-to-collect,cost-to-collect. Collections from other geographies continue to decline as we continue to focus on the U.S. and (3) higher total collections that blended down fixed cost and reduced overall cost-to-collect;
•European markets. Cost-to-collect in LAAP is expected to stay at an elevated level and will continue to fluctuate over time.
Over time, we expect our cost-to-collect to remain competitive, but also to fluctuate from quarter to quarter based on seasonality, product mix, acquisitions, foreign exchange rates, the cost of new operating initiatives, and the changing regulatory and legislative environment.
Supplemental Performance Data
The tables included in this supplemental performance data section include detail for purchases, collections and ERC by year of purchase.
Our collection expectations are based on account characteristics and economic variables. Additional adjustments are made to account for qualitative factors that may affect the payment behavior of our consumers and servicing related adjustments to ensure our collection expectations are aligned with our operations. We continue to refine our process of forecasting collections both domestically and internationally with a focus on operational enhancements. Our collection expectations vary between types of portfolio and geographic location. For example, in the U.K., due to the higher concentration of payment plans, as compared to the U.S. and other locations in Europe, we expect to receive streams of collections over longer periods of time. As a result, past performance of pools in certain geographic locations or of certain types of portfolio are not necessarily a suitable indicator of future results in other locations or for other types of portfolio.
The supplemental performance data presented in this section is impacted by foreign currency translation, which represents the effect of translating financial results where the functional currency of our foreign subsidiary is different than 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.
Cumulative Collections from Purchased Receivables to Purchase Price Multiple
The following table summarizes our receivable purchases and related gross collections by year of purchase (in thousands, except multiples):
| Year of Purchase | Year of Purchase | | Purchase Price(1) | | Cumulative Collections through March 31, 2020 | | Year of Purchase | | Purchase Price(1) | | Cumulative Collections through March 31, 2021 |
| <2011 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | Total(2) | | Multiple(3) | Year of Purchase | | Purchase Price(1) | | <2012 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | 2021 | | Total(2) | | Multiple(3) |
United States: | United States: | | United States: |
<2011 | | $ | 1,761,007 | | | $ | 3,222,155 | | | $ | 637,415 | | | $ | 458,336 | | | $ | 328,076 | | | $ | 236,557 | | | $ | 180,622 | | | $ | 129,676 | | | $ | 99,169 | | | $ | 80,397 | | | $ | 65,855 | | | $ | 15,151 | | | $ | 5,453,409 | | | 3.1 | | |
2011 | | 383,805 | | | — | | | 123,596 | | | 301,949 | | | 226,521 | | | 155,180 | | | 112,906 | | | 77,257 | | | 56,287 | | | 41,148 | | | 33,445 | | | 7,372 | | | 1,135,661 | | | 3.0 | | |
<2012 | | <2012 | | $ | 2,143,800 | | | $ | 3,983,166 | | | $ | 760,285 | | | $ | 554,597 | | | $ | 391,737 | | | $ | 293,528 | | | $ | 206,933 | | | $ | 155,456 | | | $ | 121,545 | | | $ | 99,300 | | | $ | 77,101 | | | $ | 17,651 | | | $ | 6,661,299 | | | 3.1 | |
2012 | 2012 | | 548,818 | | | — | | | — | | | 187,721 | | | 350,134 | | | 259,252 | | | 176,914 | | | 113,067 | | | 74,507 | | | 48,832 | | | 37,327 | | | 8,495 | | | 1,256,249 | | | 2.3 | | 2012 | | 548,808 | | | — | | | 187,721 | | | 350,134 | | | 259,252 | | | 176,914 | | | 113,067 | | | 74,507 | | | 48,832 | | | 37,327 | | | 27,797 | | | 6,344 | | | 1,281,895 | | | 2.3 | |
2013 | 2013 | | 551,920 | | | — | | | — | | | — | | | 230,051 | | | 397,646 | | | 298,068 | | | 203,386 | | | 147,503 | | | 107,399 | | | 84,665 | | | 17,687 | | | 1,486,405 | | | 2.7 | | 2013 | | 551,894 | | | — | | | — | | | 230,051 | | | 397,646 | | | 298,068 | | | 203,386 | | | 147,503 | | | 107,399 | | | 84,665 | | | 64,436 | | | 14,599 | | | 1,547,753 | | | 2.8 | |
2014 | 2014 | | 517,774 | | | — | | | — | | | — | | | — | | | 144,178 | | | 307,814 | | | 216,357 | | | 142,147 | | | 94,929 | | | 69,059 | | | 14,591 | | | 989,075 | | | 1.9 | | 2014 | | 517,677 | | | — | | | — | | | — | | | 144,178 | | | 307,814 | | | 216,357 | | | 142,147 | | | 94,929 | | | 69,059 | | | 47,628 | | | 9,475 | | | 1,031,587 | | | 2.0 | |
2015 | 2015 | | 499,371 | | | — | | | — | | | — | | | — | | | — | | | 105,610 | | | 231,102 | | | 186,391 | | | 125,673 | | | 85,042 | | | 18,302 | | | 752,120 | | | 1.5 | | 2015 | | 499,226 | | | — | | | — | | | — | | | — | | | 105,610 | | | 231,102 | | | 186,391 | | | 125,673 | | | 85,042 | | | 64,133 | | | 12,994 | | | 810,945 | | | 1.6 | |
2016 | 2016 | | 553,544 | | | — | | | — | | | — | | | — | | | — | | | — | | | 110,875 | | | 283,035 | | | 234,690 | | | 159,279 | | | 33,377 | | | 821,256 | | | 1.5 | | 2016 | | 553,284 | | | — | | | — | | | — | | | — | | | — | | | 110,875 | | | 283,035 | | | 234,690 | | | 159,279 | | | 116,452 | | | 26,378 | | | 930,709 | | | 1.7 | |
2017 | 2017 | | 528,642 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 111,902 | | | 315,853 | | | 255,048 | | | 55,435 | | | 738,238 | | | 1.4 | | 2017 | | 528,314 | | | — | | | — | | | — | | | — | | | — | | | — | | | 111,902 | | | 315,853 | | | 255,048 | | | 193,328 | | | 43,518 | | | 919,649 | | | 1.7 | |
2018 | 2018 | | 631,288 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 175,042 | | | 351,696 | | | 89,418 | | | 616,156 | | | 1.0 | | 2018 | | 630,704 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 175,042 | | | 351,696 | | | 308,302 | | | 68,358 | | | 903,398 | | | 1.4 | |
2019 | 2019 | | 678,821 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 174,693 | | | 102,534 | | | 277,227 | | | 0.4 | | 2019 | | 677,176 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 174,693 | | | 416,315 | | | 114,690 | | | 705,698 | | | 1.0 | |
2020 | 2020 | | 185,240 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 12,367 | | | 12,367 | | | 0.1 | | 2020 | | 539,553 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 213,450 | | | 113,142 | | | 326,592 | | | 0.6 | |
2021 | | 2021 | | 92,282 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 8,424 | | | 8,424 | | | 0.1 | |
Subtotal | Subtotal | | 6,840,230 | | | 3,222,155 | | | 761,011 | | | 948,006 | | | 1,134,782 | | | 1,192,813 | | | 1,181,934 | | | 1,081,720 | | | 1,100,941 | | | 1,223,963 | | | 1,316,109 | | | 374,729 | | | 13,538,163 | | | 2.0 | | Subtotal | | 7,282,718 | | | 3,983,166 | | | 948,006 | | | 1,134,782 | | | 1,192,813 | | | 1,181,934 | | | 1,081,720 | | | 1,100,941 | | | 1,223,963 | | | 1,316,109 | | | 1,528,942 | | | 435,573 | | | 15,127,949 | | | 2.1 | |
Europe: | Europe: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Europe: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2013 | 2013 | | 619,079 | | | — | | | — | | | — | | | 134,259 | | | 249,307 | | | 212,129 | | | 165,610 | | | 146,993 | | | 132,663 | | | 113,228 | | | 25,316 | | | 1,179,505 | | | 1.9 | | 2013 | | 619,079 | | | — | | | — | | | 134,259 | | | 249,307 | | | 212,129 | | | 165,610 | | | 146,993 | | | 132,663 | | | 113,228 | | | 93,203 | | | 24,748 | | | 1,272,140 | | | 2.1 | |
2014 | 2014 | | 623,129 | | | — | | | — | | | — | | | — | | | 135,549 | | | 198,127 | | | 156,665 | | | 137,806 | | | 129,033 | | | 105,337 | | | 23,271 | | | 885,788 | | | 1.4 | | 2014 | | 623,129 | | | — | | | — | | | — | | | 135,549 | | | 198,127 | | | 156,665 | | | 137,806 | | | 129,033 | | | 105,337 | | | 84,255 | | | 22,477 | | | 969,249 | | | 1.6 | |
2015 | 2015 | | 419,941 | | | — | | | — | | | — | | | — | | | — | | | 65,870 | | | 127,084 | | | 103,823 | | | 88,065 | | | 72,277 | | | 15,173 | | | 472,292 | | | 1.1 | | 2015 | | 419,941 | | | — | | | — | | | — | | | — | | | 65,870 | | | 127,084 | | | 103,823 | | | 88,065 | | | 72,277 | | | 55,261 | | | 15,016 | | | 527,396 | | | 1.3 | |
2016 | 2016 | | 258,218 | | | — | | | — | | | — | | | — | | | — | | | — | | | 44,641 | | | 97,587 | | | 83,107 | | | 63,198 | | | 13,102 | | | 301,635 | | | 1.2 | | 2016 | | 258,218 | | | — | | | — | | | — | | | — | | | — | | | 44,641 | | | 97,587 | | | 83,107 | | | 63,198 | | | 51,609 | | | 14,010 | | | 354,152 | | | 1.4 | |
2017 | 2017 | | 461,571 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 68,111 | | | 152,926 | | | 118,794 | | | 23,494 | | | 363,325 | | | 0.8 | | 2017 | | 461,571 | | | — | | | — | | | — | | | — | | | — | | | — | | | 68,111 | | | 152,926 | | | 118,794 | | | 87,549 | | | 23,146 | | | 450,526 | | | 1.0 | |
2018 | 2018 | | 433,302 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 49,383 | | | 118,266 | | | 22,658 | | | 190,307 | | | 0.4 | | 2018 | | 433,302 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 49,383 | | | 118,266 | | | 78,846 | | | 21,712 | | | 268,207 | | | 0.6 | |
2019 | 2019 | | 273,354 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 44,118 | | | 20,107 | | | 64,225 | | | 0.2 | | 2019 | | 273,354 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 44,118 | | | 80,502 | | | 23,979 | | | 148,599 | | | 0.5 | |
2020 | 2020 | | 28,861 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 982 | | | 982 | | | 0.0 | | 2020 | | 116,899 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 22,721 | | | 15,121 | | | 37,842 | | | 0.3 | |
2021 | | 2021 | | 77,826 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,392 | | | 2,392 | | | — | |
Subtotal | Subtotal | | 3,117,455 | | | — | | | — | | | — | | | 134,259 | | | 384,856 | | | 476,126 | | | 494,000 | | | 554,320 | | | 635,177 | | | 635,218 | | | 144,103 | | | 3,458,059 | | | 1.1 | | Subtotal | | 3,283,319 | | | — | | | — | | | 134,259 | | | 384,856 | | | 476,126 | | | 494,000 | | | 554,320 | | | 635,177 | | | 635,218 | | | 553,946 | | | 162,601 | | | 4,030,503 | | | 1.2 | |
Other geographies: | Other geographies: | | | | | | | | | | | | | | | | | | | | | | | | | | | Other geographies: | | | | | | | | | | | | | | | | | | | | | | | | | |
2012 | 2012 | | 6,721 | | | — | | | — | | | — | | | 3,848 | | | 2,561 | | | 1,208 | | | 542 | | | 551 | | | 422 | | | 390 | | | 70 | | | 9,592 | | | 1.4 | | 2012 | | 6,721 | | | — | | | — | | | 3,848 | | | 2,561 | | | 1,208 | | | 542 | | | 551 | | | 422 | | | 390 | | | 294 | | | 95 | | | 9,911 | | | 1.5 | |
2013 | 2013 | | 29,568 | | | — | | | — | | | — | | | 6,617 | | | 17,615 | | | 10,334 | | | 4,606 | | | 3,339 | | | 2,468 | | | 1,573 | | | 291 | | | 46,843 | | | 1.6 | | 2013 | | 29,568 | | | — | | | — | | | 6,617 | | | 17,615 | | | 10,334 | | | 4,606 | | | 3,339 | | | 2,468 | | | 1,573 | | | 1,042 | | | 297 | | | 47,891 | | | 1.6 | |
2014 | 2014 | | 86,989 | | | — | | | — | | | — | | | — | | | 9,652 | | | 16,062 | | | 18,403 | | | 9,813 | | | 7,991 | | | 6,472 | | | 1,350 | | | 69,743 | | | 0.8 | | 2014 | | 86,989 | | | — | | | — | | | — | | | 9,652 | | | 16,062 | | | 18,403 | | | 9,813 | | | 7,991 | | | 6,472 | | | 4,300 | | | 1,391 | | | 74,084 | | | 0.9 | |
2015 | 2015 | | 83,198 | | | — | | | — | | | — | | | — | | | — | | | 15,061 | | | 57,064 | | | 43,499 | | | 32,622 | | | 17,499 | | | 1,557 | | | 167,302 | | | 2.0 | | 2015 | | 83,198 | | | — | | | — | | | — | | | — | | | 15,061 | | | 57,064 | | | 43,499 | | | 32,622 | | | 17,499 | | | 4,688 | | | 1,192 | | | 171,625 | | | 2.1 | |
2016 | 2016 | | 64,450 | | | — | | | — | | | — | | | — | | | — | | | — | | | 29,269 | | | 39,710 | | | 28,992 | | | 16,078 | | | 1,652 | | | 115,701 | | | 1.8 | | 2016 | | 64,450 | | | — | | | — | | | — | | | — | | | — | | | 29,269 | | | 39,710 | | | 28,992 | | | 16,078 | | | 5,196 | | | 1,333 | | | 120,578 | | | 1.9 | |
2017 | 2017 | | 49,670 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,471 | | | 23,075 | | | 15,383 | | | 1,875 | | | 55,804 | | | 1.1 | | 2017 | | 49,670 | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,471 | | | 23,075 | | | 15,383 | | | 7,303 | | | 2,269 | | | 63,501 | | | 1.3 | |
2018 | 2018 | | 26,371 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 12,910 | | | 15,008 | | | 1,580 | | | 29,498 | | | 1.1 | | 2018 | | 26,371 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 12,910 | | | 15,008 | | | 5,892 | | | 1,640 | | | 35,450 | | | 1.3 | |
2019 | 2019 | | 2,668 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,198 | | | 72 | | | 3,270 | | | 1.2 | | 2019 | | 2,668 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,198 | | | 245 | | | 70 | | | 3,513 | | | 1.3 | |
2020 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Subtotal | Subtotal | | 349,635 | | | — | | | — | | | — | | | 10,465 | | | 29,828 | | | 42,665 | | | 109,884 | | | 112,383 | | | 108,480 | | | 75,601 | | | 8,447 | | | 497,753 | | | 1.4 | | Subtotal | | 349,635 | | | — | | | — | | | 10,465 | | | 29,828 | | | 42,665 | | | 109,884 | | | 112,383 | | | 108,480 | | | 75,601 | | | 28,960 | | | 8,287 | | | 526,553 | | | 1.5 | |
Total | Total | | $ | 10,307,320 | | | $ | 3,222,155 | | | $ | 761,011 | | | $ | 948,006 | | | $ | 1,279,506 | | | $ | 1,607,497 | | | $ | 1,700,725 | | | $ | 1,685,604 | | | $ | 1,767,644 | | | $ | 1,967,620 | | | $ | 2,026,928 | | | $ | 527,279 | | | $ | 17,493,975 | | | 1.7 | | Total | | $ | 10,915,672 | | | $ | 3,983,166 | | | $ | 948,006 | | | $ | 1,279,506 | | | $ | 1,607,497 | | | $ | 1,700,725 | | | $ | 1,685,604 | | | $ | 1,767,644 | | | $ | 1,967,620 | | | $ | 2,026,928 | | | $ | 2,111,848 | | | $ | 606,461 | | | $ | 19,685,005 | | | 1.8 | |
________________________
(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 March 31, 2020,2021, excluding collections on behalf of others.
(3)Cumulative Collections Multiple (“Multiple”) through March 31, 20202021 refers to collections as a multiple of purchase price.
Total Estimated Collections from Purchased Receivables to Purchase Price Multiple
The following table summarizes our purchases, resulting historical gross collections, and estimated remaining gross collections from purchased receivables, by year of purchase (in thousands, except multiples):
| | | Purchase Price(1) | | Historical Collections(2) | | Estimated Remaining Collections | | Total Estimated Gross Collections | | Total Estimated Gross Collections to Purchase Price | | Purchase Price(1) | | Historical Collections(2) | | Estimated Remaining Collections | | Total Estimated Gross Collections | | Total Estimated Gross Collections to Purchase Price |
United States: | United States: | | | | | | | | | | | | | | United States: | | | | | | | | | |
<2011 | <2011 | $ | 1,761,007 | | | $ | 5,453,409 | | | $ | 156,749 | | | $ | 5,610,158 | | | 3.2 | | <2011 | $ | 1,760,006 | | | $ | 5,501,203 | | | $ | 105,360 | | | $ | 5,606,563 | | | 3.2 | |
2011 | 2011 | 383,805 | | | 1,135,661 | | | 73,676 | | | 1,209,337 | | | 3.2 | | 2011 | 383,794 | | | 1,160,096 | | | 51,789 | | | 1,211,885 | | | 3.2 | |
2012 | 2012 | 548,818 | | | 1,256,249 | | | 83,474 | | | 1,339,723 | | | 2.4 | | 2012 | 548,808 | | | 1,281,895 | | | 56,219 | | | 1,338,114 | | | 2.4 | |
2013(3) | 2013(3) | 551,920 | | | 1,486,405 | | | 227,630 | | | 1,714,035 | | | 3.1 | | 2013(3) | 551,894 | | | 1,547,753 | | | 159,200 | | | 1,706,953 | | | 3.1 | |
2014(3) | 2014(3) | 517,774 | | | 989,075 | | | 150,849 | | | 1,139,924 | | | 2.2 | | 2014(3) | 517,677 | | | 1,031,587 | | | 98,327 | | | 1,129,914 | | | 2.2 | |
2015 | 2015 | 499,371 | | | 752,120 | | | 165,897 | | | 918,017 | | | 1.8 | | 2015 | 499,226 | | | 810,945 | | | 109,999 | | | 920,944 | | | 1.8 | |
2016 | 2016 | 553,544 | | | 821,256 | | | 305,060 | | | 1,126,316 | | | 2.0 | | 2016 | 553,284 | | | 930,709 | | | 204,119 | | | 1,134,828 | | | 2.1 | |
2017 | 2017 | 528,642 | | | 738,238 | | | 477,336 | | | 1,215,574 | | | 2.3 | | 2017 | 528,314 | | | 919,649 | | | 332,635 | | | 1,252,284 | | | 2.4 | |
2018 | 2018 | 631,288 | | | 616,156 | | | 776,619 | | | 1,392,775 | | | 2.2 | | 2018 | 630,704 | | | 903,398 | | | 502,810 | | | 1,406,208 | | | 2.2 | |
2019 | 2019 | 678,821 | | | 277,227 | | | 1,327,476 | | | 1,604,703 | | | 2.4 | | 2019 | 677,176 | | | 705,698 | | | 891,534 | | | 1,597,232 | | | 2.4 | |
2020 | 2020 | 185,240 | | | 12,367 | | | 408,161 | | | 420,528 | | | 2.3 | | 2020 | 539,553 | | | 326,592 | | | 1,002,765 | | | 1,329,357 | | | 2.5 | |
2021 | | 2021 | 92,282 | | | 8,424 | | | 223,227 | | | 231,651 | | | 2.5 | |
Subtotal | Subtotal | 6,840,230 | | | 13,538,163 | | | 4,152,927 | | | 17,691,090 | | | 2.6 | | Subtotal | 7,282,718 | | | 15,127,949 | | | 3,737,984 | | | 18,865,933 | | | 2.6 | |
Europe: | Europe: | | | | | | | | | Europe: | | | | | | | | |
2013(3) | 2013(3) | 619,079 | | | 1,179,505 | | | 864,253 | | | 2,043,758 | | | 3.3 | | 2013(3) | 619,079 | | | 1,272,140 | | | 865,462 | | | 2,137,602 | | | 3.5 | |
2014(3) | 2014(3) | 623,129 | | | 885,788 | | | 651,050 | | | 1,536,838 | | | 2.5 | | 2014(3) | 623,129 | | | 969,249 | | | 642,939 | | | 1,612,188 | | | 2.6 | |
2015(3) | 2015(3) | 419,941 | | | 472,292 | | | 421,602 | | | 893,894 | | | 2.1 | | 2015(3) | 419,941 | | | 527,396 | | | 413,504 | | | 940,900 | | | 2.2 | |
2016 | 2016 | 258,218 | | | 301,635 | | | 334,423 | | | 636,058 | | | 2.5 | | 2016 | 258,218 | | | 354,152 | | | 319,524 | | | 673,676 | | | 2.6 | |
2017 | 2017 | 461,571 | | | 363,325 | | | 586,845 | | | 950,170 | | | 2.1 | | 2017 | 461,571 | | | 450,526 | | | 558,605 | | | 1,009,131 | | | 2.2 | |
2018 | 2018 | 433,302 | | | 190,307 | | | 633,275 | | | 823,582 | | | 1.9 | | 2018 | 433,302 | | | 268,207 | | | 610,538 | | | 878,745 | | | 2.0 | |
2019 | 2019 | 273,354 | | | 64,225 | | | 528,265 | | | 592,490 | | | 2.2 | | 2019 | 273,354 | | | 148,599 | | | 502,757 | | | 651,356 | | | 2.4 | |
2020 | 2020 | 28,861 | | | 982 | | | 71,820 | | | 72,802 | | | 2.5 | | 2020 | 116,899 | | | 37,842 | | | 302,226 | | | 340,068 | | | 2.9 | |
2021 | | 2021 | 77,826 | | | 2,392 | | | 175,991 | | | 178,383 | | | 2.3 | |
Subtotal | Subtotal | 3,117,455 | | | 3,458,059 | | | 4,091,533 | | | 7,549,592 | | | 2.4 | | Subtotal | 3,283,319 | | | 4,030,503 | | | 4,391,546 | | | 8,422,049 | | | 2.6 | |
Other geographies: | Other geographies: | | | | | | | | | Other geographies: | | | | | | | |
2012 | 2012 | 6,721 | | | 9,592 | | | 340 | | | 9,932 | | | 1.5 | | 2012 | 6,721 | | | 9,911 | | | 63 | | | 9,974 | | | 1.5 | |
2013 | 2013 | 29,568 | | | 46,843 | | | 1,629 | | | 48,472 | | | 1.6 | | 2013 | 29,568 | | | 47,891 | | | 774 | | | 48,665 | | | 1.6 | |
2014 | 2014 | 86,989 | | | 69,743 | | | 50,060 | | | 119,803 | | | 1.4 | | 2014 | 86,989 | | | 74,084 | | | 50,516 | | | 124,600 | | | 1.4 | |
2015 | 2015 | 83,198 | | | 167,302 | | | 20,132 | | | 187,434 | | | 2.3 | | 2015 | 83,198 | | | 171,625 | | | 13,321 | | | 184,946 | | | 2.2 | |
2016 | 2016 | 64,450 | | | 115,701 | | | 11,131 | | | 126,832 | | | 2.0 | | 2016 | 64,450 | | | 120,578 | | | 4,289 | | | 124,867 | | | 1.9 | |
2017 | 2017 | 49,670 | | | 55,804 | | | 32,047 | | | 87,851 | | | 1.8 | | 2017 | 49,670 | | | 63,501 | | | 26,781 | | | 90,282 | | | 1.8 | |
2018 | 2018 | 26,371 | | | 29,498 | | | 12,406 | | | 41,904 | | | 1.6 | | 2018 | 26,371 | | | 35,450 | | | 7,664 | | | 43,114 | | | 1.6 | |
2019 | 2019 | 2,668 | | | 3,270 | | | 513 | | | 3,783 | | | 1.4 | | 2019 | 2,668 | | | 3,513 | | | 323 | | | 3,836 | | | 1.4 | |
2020 | — | | | — | | | — | | | — | | | — | | |
| Subtotal | Subtotal | 349,635 | | | 497,753 | | | 128,258 | | | 626,011 | | | 1.8 | | Subtotal | 349,635 | | | 526,553 | | | 103,731 | | | 630,284 | | | 1.8 | |
Total | Total | $ | 10,307,320 | | | $ | 17,493,975 | | | $ | 8,372,718 | | | $ | 25,866,693 | | | 2.5 | | Total | $ | 10,915,672 | | | $ | 19,685,005 | | | $ | 8,233,261 | | | $ | 27,918,266 | | | 2.6 | |
________________________
(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 March 31, 2020,2021, excluding collections on behalf of others.
(3)Includes portfolios acquired in connection with certain business combinations.
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 by year of purchase (in thousands):
| | | Estimated Remaining Gross Collections by Year of Purchase(1) | | | Estimated Remaining Gross Collections by Year of Purchase(1) |
| | 2020(3) | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | >2028 | | Total(2) | | 2021(3) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | >2029 | | Total(2) |
United States: | United States: | | United States: |
<2011 | <2011 | $ | 34,003 | | | $ | 42,770 | | | $ | 26,618 | | | $ | 18,485 | | | $ | 12,801 | | | $ | 8,718 | | | $ | 5,834 | | | $ | 3,800 | | | $ | 2,298 | | | $ | 1,422 | | | $ | 156,749 | | <2011 | $ | 26,212 | | | $ | 26,102 | | | $ | 18,170 | | | $ | 12,578 | | | $ | 8,578 | | | $ | 5,814 | | | $ | 3,861 | | | $ | 2,385 | | | $ | 1,260 | | | $ | 400 | | | $ | 105,360 | |
2011 | 2011 | 15,679 | | | 19,195 | | | 11,871 | | | 8,334 | | | 5,874 | | | 4,142 | | | 2,927 | | | 2,074 | | | 1,473 | | | 2,107 | | | 73,676 | | 2011 | 12,457 | | | 12,168 | | | 8,473 | | | 5,928 | | | 4,171 | | | 2,944 | | | 2,080 | | | 1,474 | | | 1,047 | | | 1,047 | | | 51,789 | |
2012 | 2012 | 17,801 | | | 21,976 | | | 13,273 | | | 9,297 | | | 6,541 | | | 4,611 | | | 3,255 | | | 2,304 | | | 1,635 | | | 2,781 | | | 83,474 | | 2012 | 13,437 | | | 12,995 | | | 9,133 | | | 6,406 | | | 4,510 | | | 3,181 | | | 2,249 | | | 1,596 | | | 1,136 | | | 1,576 | | | 56,219 | |
2013(4) | 2013(4) | 41,433 | | | 58,706 | | | 37,648 | | | 26,573 | | | 18,807 | | | 13,338 | | | 9,464 | | | 6,717 | | | 4,769 | | | 10,175 | | | 227,630 | | 2013(4) | 37,028 | | | 36,243 | | | 25,680 | | | 18,191 | | | 12,903 | | | 9,156 | | | 6,498 | | | 4,614 | | | 3,277 | | | 5,610 | | | 159,200 | |
2014(4) | 2014(4) | 31,726 | | | 39,781 | | | 24,335 | | | 16,725 | | | 11,468 | | | 8,076 | | | 5,713 | | | 4,047 | | | 2,869 | | | 6,109 | | | 150,849 | | 2014(4) | 23,588 | | | 22,761 | | | 15,677 | | | 10,805 | | | 7,630 | | | 5,402 | | | 3,829 | | | 2,717 | | | 1,931 | | | 3,987 | | | 98,327 | |
2015 | 2015 | 38,224 | | | 44,482 | | | 27,102 | | | 18,120 | | | 12,206 | | | 7,948 | | | 5,446 | | | 3,835 | | | 2,706 | | | 5,828 | | | 165,897 | | 2015 | 27,168 | | | 26,079 | | | 18,006 | | | 12,193 | | | 8,121 | | | 5,575 | | | 3,933 | | | 2,781 | | | 1,971 | | | 4,172 | | | 109,999 | |
2016 | 2016 | 69,574 | | | 83,698 | | | 46,158 | | | 31,673 | | | 22,481 | | | 15,859 | | | 10,957 | | | 7,709 | | | 5,419 | | | 11,532 | | | 305,060 | | 2016 | 53,665 | | | 47,533 | | | 31,980 | | | 21,983 | | | 15,104 | | | 10,293 | | | 7,195 | | | 5,067 | | | 3,576 | | | 7,723 | | | 204,119 | |
2017 | 2017 | 110,650 | | | 131,493 | | | 76,280 | | | 48,620 | | | 33,282 | | | 23,388 | | | 16,531 | | | 11,566 | | | 8,162 | | | 17,364 | | | 477,336 | | 2017 | 88,721 | | | 78,385 | | | 49,933 | | | 35,497 | | | 24,340 | | | 16,930 | | | 11,827 | | | 8,352 | | | 5,889 | | | 12,761 | | | 332,635 | |
2018 | 2018 | 188,052 | | | 219,573 | | | 130,602 | | | 84,092 | | | 53,048 | | | 34,947 | | | 23,049 | | | 15,144 | | | 9,890 | | | 18,222 | | | 776,619 | | 2018 | 137,797 | | | 125,833 | | | 81,381 | | | 54,057 | | | 35,510 | | | 23,418 | | | 15,449 | | | 10,112 | | | 6,730 | | | 12,523 | | | 502,810 | |
2019 | 2019 | 289,653 | | | 405,226 | | | 207,586 | | | 129,623 | | | 88,517 | | | 61,172 | | | 43,469 | | | 31,721 | | | 23,032 | | | 47,477 | | | 1,327,476 | | 2019 | 246,003 | | | 209,162 | | | 134,096 | | | 93,610 | | | 63,905 | | | 44,357 | | | 31,261 | | | 21,994 | | | 15,234 | | | 31,912 | | | 891,534 | |
2020 | 2020 | 66,269 | | | 118,820 | | | 82,316 | | | 46,276 | | | 29,463 | | | 19,988 | | | 13,595 | | | 9,693 | | | 6,972 | | | 14,769 | | | 408,161 | | 2020 | 222,665 | | | 280,072 | | | 163,837 | | | 106,095 | | | 71,412 | | | 48,451 | | | 34,062 | | | 24,314 | | | 17,327 | | | 34,530 | | | 1,002,765 | |
2021 | | 2021 | 45,237 | | | 60,671 | | | 41,106 | | | 24,362 | | | 16,147 | | | 11,131 | | | 7,554 | | | 5,313 | | | 3,761 | | | 7,945 | | | 223,227 | |
Subtotal | Subtotal | 903,064 | | | 1,185,720 | | | 683,789 | | | 437,818 | | | 294,488 | | | 202,187 | | | 140,240 | | | 98,610 | | | 69,225 | | | 137,786 | | | 4,152,927 | | Subtotal | 933,978 | | | 938,004 | | | 597,472 | | | 401,705 | | | 272,331 | | | 186,652 | | | 129,798 | | | 90,719 | | | 63,139 | | | 124,186 | | | 3,737,984 | |
Europe: | Europe: | | | | | | | | | | | | | | | | | | | | | | Europe: | | | | | | | | | | | | | | | | | | | | | |
2013(4) | 2013(4) | 65,016 | | | 97,245 | | | 89,756 | | | 82,763 | | | 75,784 | | | 68,460 | | | 61,018 | | | 54,687 | | | 49,026 | | | 220,498 | | | 864,253 | | 2013(4) | 70,401 | | | 91,831 | | | 88,191 | | | 82,241 | | | 75,011 | | | 68,559 | | | 61,460 | | | 55,275 | | | 49,680 | | | 222,813 | | | 865,462 | |
2014(4) | 2014(4) | 53,447 | | | 82,619 | | | 72,490 | | | 64,437 | | | 57,662 | | | 50,983 | | | 43,579 | | | 38,471 | | | 34,418 | | | 152,944 | | | 651,050 | | 2014(4) | 60,729 | | | 74,390 | | | 69,269 | | | 63,117 | | | 56,840 | | | 48,712 | | | 43,025 | | | 38,018 | | | 34,305 | | | 154,534 | | | 642,939 | |
2015(4) | 2015(4) | 33,723 | | | 54,501 | | | 46,837 | | | 41,600 | | | 37,365 | | | 33,430 | | | 29,283 | | | 25,112 | | | 22,306 | | | 97,445 | | | 421,602 | | 2015(4) | 39,471 | | | 48,472 | | | 44,854 | | | 40,580 | | | 36,778 | | | 32,232 | | | 27,720 | | | 24,603 | | | 22,134 | | | 96,660 | | | 413,504 | |
2016 | 2016 | 28,748 | | | 56,789 | | | 54,024 | | | 37,176 | | | 29,545 | | | 25,543 | | | 21,344 | | | 17,597 | | | 14,385 | | | 49,272 | | | 334,423 | | 2016 | 44,969 | | | 51,726 | | | 39,178 | | | 32,325 | | | 28,688 | | | 24,039 | | | 19,958 | | | 16,698 | | | 14,291 | | | 47,652 | | | 319,524 | |
2017 | 2017 | 54,962 | | | 89,183 | | | 77,170 | | | 65,197 | | | 55,192 | | | 45,740 | | | 37,969 | | | 32,331 | | | 26,477 | | | 102,624 | | | 586,845 | | 2017 | 62,593 | | | 79,825 | | | 69,366 | | | 58,865 | | | 50,329 | | | 42,446 | | | 36,620 | | | 30,472 | | | 26,128 | | | 101,961 | | | 558,605 | |
2018 | 2018 | 55,516 | | | 93,158 | | | 79,957 | | | 68,919 | | | 59,021 | | | 51,049 | | | 43,671 | | | 36,832 | | | 31,218 | | | 113,934 | | | 633,275 | | 2018 | 62,749 | | | 82,001 | | | 74,626 | | | 65,036 | | | 57,067 | | | 49,158 | | | 41,453 | | | 35,629 | | | 30,312 | | | 112,507 | | | 610,538 | |
2019 | 2019 | 47,943 | | | 84,335 | | | 71,488 | | | 60,228 | | | 50,094 | | | 40,533 | | | 33,591 | | | 28,671 | | | 24,603 | | | 86,779 | | | 528,265 | | 2019 | 62,358 | | | 75,770 | | | 64,237 | | | 55,012 | | | 45,847 | | | 37,406 | | | 30,879 | | | 26,291 | | | 21,933 | | | 83,024 | | | 502,757 | |
2020 | 2020 | 5,231 | | | 12,610 | | | 11,064 | | | 8,806 | | | 7,193 | | | 5,802 | | | 4,756 | | | 3,679 | | | 2,969 | | | 9,710 | | | 71,820 | | 2020 | 34,809 | | | 46,700 | | | 42,482 | | | 34,029 | | | 27,257 | | | 23,904 | | | 19,361 | | | 16,099 | | | 13,306 | | | 44,279 | | | 302,226 | |
2021 | | 2021 | 17,842 | | | 24,467 | | | 21,842 | | | 18,550 | | | 15,895 | | | 13,844 | | | 12,226 | | | 10,718 | | | 8,884 | | | 31,723 | | | 175,991 | |
Subtotal | Subtotal | 344,586 | | | 570,440 | | | 502,786 | | | 429,126 | | | 371,856 | | | 321,540 | | | 275,211 | | | 237,380 | | | 205,402 | | | 833,206 | | | 4,091,533 | | Subtotal | 455,921 | | | 575,182 | | | 514,045 | | | 449,755 | | | 393,712 | | | 340,300 | | | 292,702 | | | 253,803 | | | 220,973 | | | 895,153 | | | 4,391,546 | |
Other geographies: | Other geographies: | | | | | | | | | | | | | | | | | | | | | | Other geographies: | | | | | | | | | | | | | | | | | | | | |
2012 | 2012 | 107 | | | 149 | | | 84 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 340 | | 2012 | 46 | | | 17 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 63 | |
2013 | 2013 | 459 | | | 591 | | | 387 | | | 192 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,629 | | 2013 | 338 | | | 282 | | | 154 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 774 | |
2014 | 2014 | 5,108 | | | 8,163 | | | 6,681 | | | 6,328 | | | 5,643 | | | 4,471 | | | 2,687 | | | 1,455 | | | 1,367 | | | 8,157 | | | 50,060 | | 2014 | 7,463 | | | 8,166 | | | 7,350 | | | 6,342 | | | 4,803 | | | 2,822 | | | 1,606 | | | 1,462 | | | 1,462 | | | 9,040 | | | 50,516 | |
2015 | 2015 | 2,894 | | | 3,776 | | | 3,197 | | | 2,605 | | | 1,814 | | | 1,212 | | | 840 | | | 736 | | | 636 | | | 2,422 | | | 20,132 | | 2015 | 2,149 | | | 2,202 | | | 2,197 | | | 1,627 | | | 1,136 | | | 761 | | | 637 | | | 534 | | | 449 | | | 1,629 | | | 13,321 | |
2016 | 2016 | 3,388 | | | 4,036 | | | 2,498 | | | 669 | | | 263 | | | 177 | | | 100 | | | — | | | — | | | — | | | 11,131 | | 2016 | 1,972 | | | 1,325 | | | 500 | | | 243 | | | 158 | | | 91 | | | — | | | — | | | — | | | — | | | 4,289 | |
2017 | 2017 | 5,539 | | | 6,974 | | | 5,005 | | | 3,689 | | | 2,126 | | | 1,840 | | | 1,311 | | | 719 | | | 692 | | | 4,152 | | | 32,047 | | 2017 | 5,195 | | | 5,085 | | | 3,773 | | | 2,241 | | | 1,987 | | | 1,489 | | | 854 | | | 752 | | | 752 | | | 4,653 | | | 26,781 | |
2018 | 2018 | 2,899 | | | 3,645 | | | 2,420 | | | 1,650 | | | 813 | | | 435 | | | 284 | | | 186 | | | 74 | | | — | | | 12,406 | | 2018 | 2,353 | | | 1,959 | | | 1,368 | | | 898 | | | 483 | | | 315 | | | 207 | | | 81 | | | — | | | — | | | 7,664 | |
2019 | 2019 | 134 | | | 159 | | | 99 | | | 67 | | | 45 | | | 9 | | | — | | | — | | | — | | | — | | | 513 | | 2019 | 113 | | | 90 | | | 60 | | | 50 | | | 10 | | | — | | | — | | | — | | | — | | | — | | | 323 | |
2020 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Subtotal | Subtotal | 20,528 | | | 27,493 | | | 20,371 | | | 15,200 | | | 10,704 | | | 8,144 | | | 5,222 | | | 3,096 | | | 2,769 | | | 14,731 | | | 128,258 | | Subtotal | 19,629 | | | 19,126 | | | 15,402 | | | 11,401 | | | 8,577 | | | 5,478 | | | 3,304 | | | 2,829 | | | 2,663 | | | 15,322 | | | 103,731 | |
Portfolio ERC | Portfolio ERC | 1,268,178 | | | 1,783,653 | | | 1,206,946 | | | 882,144 | | | 677,048 | | | 531,871 | | | 420,673 | | | 339,086 | | | 277,396 | | | 985,723 | | | 8,372,718 | | Portfolio ERC | 1,409,528 | | | 1,532,312 | | | 1,126,919 | | | 862,861 | | | 674,620 | | | 532,430 | | | 425,804 | | | 347,351 | | | 286,775 | | | 1,034,661 | | | 8,233,261 | |
REO ERC(5) | REO ERC(5) | 13,461 | | | | 35,374 | | | | 17,655 | | | | 8,913 | | | | 7,148 | | | | 3,615 | | | | 64 | | | | — | | | | — | | | | — | | | | 86,230 | | REO ERC(5) | 20,586 | | | 26,884 | | | 17,796 | | | 7,970 | | | 1,988 | | | 68 | | | 11 | | | 76 | | | 283 | | | — | | | 75,662 | |
Total ERC | Total ERC | $ | 1,281,639 | | | $ | 1,819,027 | | | $ | 1,224,601 | | | $ | 891,057 | | | $ | 684,196 | | | $ | 535,486 | | | $ | 420,737 | | | $ | 339,086 | | | $ | 277,396 | | | $ | 985,723 | | | $ | 8,458,948 | | Total ERC | $ | 1,430,114 | | | $ | 1,559,196 | | | $ | 1,144,715 | | | $ | 870,831 | | | $ | 676,608 | | | $ | 532,498 | | | $ | 425,815 | | | $ | 347,427 | | | $ | 287,058 | | | $ | 1,034,661 | | | $ | 8,308,923 | |
________________________
(1)As of March 31, 2020,2021, ERC for Zero Basis Portfolios include approximately $156.7$105.4 million for purchased consumer and bankruptcy receivables in the United States. ERC for Zero Basis Portfolios in Europe and other geographies was immaterial. ERC also includes approximately $76.1 million from cost recovery portfolios, primarily in other geographies.
(2)Represents the expected remaining gross cash collections on purchased portfolios over a 180-month period. As of March 31, 2020,2021, ERC from purchased receivables for 84-month and 120-month periods were:
| | | | | | | | | | | | | |
| 84-Month ERC | | 120-Month ERC | | |
United States | $ | 3,875,245 | | | $ | 4,072,425 | | | |
Europe | 2,878,292 | | | 3,478,009 | | | |
Other geographies | 108,446 | | | 116,744 | | | |
Total | $ | 6,861,983 | | | $ | 7,667,178 | | | |
| | | | | | | | | | | | | |
| 84-Month ERC | | 120-Month ERC | | |
United States | $ | 3,485,857 | | | $ | 3,666,276 | | | |
Europe | 3,088,406 | | | 3,733,609 | | | |
Other geographies | 83,645 | | | 91,634 | | | |
Portfolio ERC | 6,657,908 | | | 7,491,519 | | | |
REO ERC | 75,304 | | | 75,662 | | | |
Total ERC | $ | 6,733,212 | | | $ | 7,567,181 | | | |
(3)2020 amountAmount for 2021 consists of nine months data from April 1, 20202021 to December 31, 2020.2021.
(4)Includes portfolios acquired in connection with certain business combinations.
(5)Real estate-owned assets ERC includes approximately $82.5$74.0 million and $3.7$1.7 million of estimated future cash flows for Europe and Other Geographies, respectively. As of December 31, 2019, estimated future cash flows for real estate-owned assets were approximately $88.0 million and $4.4 million, for Europe and Other Geographies, respectively.
Estimated Future Collections Applied to Principal
As of March 31, 2020,2021, we had $3.2 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, | Years Ending December 31, | United States | | Europe | | Other Geographies | | Total | Years Ending December 31, | United States | | Europe | | Other Geographies | | Total |
2020(1) | $ | 262,775 | | | $ | 40,238 | | | $ | 9,895 | | | $ | 312,908 | | |
2021 | 532,398 | | | 195,560 | | | 15,337 | | | 743,295 | | |
2021(1) | | 2021(1) | $ | 370,692 | | | $ | 138,034 | | | $ | 12,997 | | | $ | 521,723 | |
2022 | 2022 | 281,131 | | | 179,894 | | | 12,456 | | | 473,481 | | 2022 | 402,587 | | | 187,848 | | | 13,286 | | | 603,721 | |
2023 | 2023 | 166,963 | | | 151,215 | | | 7,899 | | | 326,077 | | 2023 | 242,472 | | | 175,413 | | | 10,088 | | | 427,973 | |
2024 | 2024 | 107,866 | | | 131,691 | | | 6,028 | | | 245,585 | | 2024 | 158,932 | | | 155,195 | | | 6,675 | | | 320,802 | |
2025 | 2025 | 72,481 | | | 114,933 | | | 4,952 | | | 192,366 | | 2025 | 105,328 | | | 138,573 | | | 5,233 | | | 249,134 | |
2026 | 2026 | 49,487 | | | 97,881 | | | 2,961 | | | 150,329 | | 2026 | 70,715 | | | 120,586 | | | 3,104 | | | 194,405 | |
2027 | 2027 | 35,029 | | | 84,748 | | | 1,603 | | | 121,380 | | 2027 | 48,851 | | | 103,157 | | | 1,767 | | | 153,775 | |
2028 | 2028 | 25,029 | | | 74,317 | | | 1,432 | | | 100,778 | | 2028 | 34,319 | | | 90,071 | | | 1,532 | | | 125,922 | |
2029 | 2029 | 17,517 | | | 66,645 | | | 1,365 | | | 85,527 | | 2029 | 24,064 | | | 80,059 | | | 1,462 | | | 105,585 | |
2030 | 2030 | 12,430 | | | 62,460 | | | 1,363 | | | 76,253 | | 2030 | 17,016 | | | 72,111 | | | 1,462 | | | 90,589 | |
2031 | 2031 | 9,006 | | | 62,480 | | | 1,360 | | | 72,846 | | 2031 | 12,198 | | | 68,219 | | | 1,462 | | | 81,879 | |
2032 | 2032 | 6,765 | | | 64,548 | | | 1,358 | | | 72,671 | | 2032 | 8,977 | | | 67,798 | | | 1,462 | | | 78,237 | |
2033 | 2033 | 5,500 | | | 70,066 | | | 1,356 | | | 76,922 | | 2033 | 7,035 | | | 70,246 | | | 1,462 | | | 78,743 | |
2034 | 2034 | 5,104 | | | 79,311 | | | 1,354 | | | 85,769 | | 2034 | 5,828 | | | 74,719 | | | 10 | | | 80,557 | |
2035 | 2035 | 725 | | | 26,264 | | | 2,842 | | | 29,831 | | 2035 | 3,660 | | | 84,216 | | | — | | | 87,876 | |
2036 | | 2036 | 710 | | | 24,047 | | | — | | | 24,757 | |
Total | Total | $ | 1,590,206 | | | $ | 1,502,251 | | | $ | 73,561 | | | $ | 3,166,018 | | Total | $ | 1,513,384 | | | $ | 1,650,292 | | | $ | 62,002 | | | $ | 3,225,678 | |
________________________
(1)2020 amountAmount for 2021 consists of nine months data from April 1, 20202021 to December 31, 2020.2021.
Headcount by Geographic Location and Function
The following table summarizes our headcount by geographic location and by function:
| | | | | | | | | | | |
| Headcount as of March 31, | | |
| 2020 | | 2019 |
United States: | | | |
General & Administrative | 1,137 | | | | 1,097 | |
Account Manager | 416 | | | | 495 | |
Subtotal | 1,553 | | | 1,592 | |
Europe: | | | |
General & Administrative | 1,079 | | | | 1,049 | |
Account Manager | 2,234 | | | | 2,111 | |
Subtotal | 3,313 | | | 3,160 | |
Other Geographies(1): | | | |
General & Administrative | 621 | | | | 1,353 | |
Account Manager | 2,137 | | | | 1,830 | |
Subtotal | 2,758 | | | 3,183 | |
Total | 7,624 | | | 7,935 | |
________________________
(1)Headcount as of March 31, 2019 includes 170 general and administrative and 361 account manager Baycorp employees.
Purchases by Quarter
The following table summarizes the receivable portfolios we purchased by quarter, and the respective purchase prices and fair value ((in thousandsthousands)):
| Quarter | Quarter | # of Accounts | | Face Value | | Purchase Price | Quarter | # of Accounts | | Face Value | | Purchase Price |
Q1 2018 | 973 | | | $ | 1,799,804 | | | $ | 276,762 | | |
Q2 2018 | 1,031 | | | 2,870,456 | | | 359,580 | | |
Q3 2018 | 706 | | | 1,559,241 | | | 248,691 | | |
Q4 2018 | 766 | | | 2,272,113 | | | 246,865 | | |
Q1 2019 | Q1 2019 | 854 | | | 1,732,977 | | | 262,335 | | Q1 2019 | 854 | | | $ | 1,732,977 | | | $ | 262,335 | |
Q2 2019 | Q2 2019 | 778 | | | 2,307,711 | | | 242,697 | | Q2 2019 | 778 | | | 2,307,711 | | | 242,697 | |
Q3 2019 | Q3 2019 | 1,255 | | | 5,313,092 | | | 259,910 | | Q3 2019 | 1,255 | | | 5,313,092 | | | 259,910 | |
Q4 2019 | Q4 2019 | 803 | | | 2,241,628 | | | 234,916 | | Q4 2019 | 803 | | | 2,241,628 | | | 234,916 | |
Q1 2020 | Q1 2020 | 943 | | | 1,703,021 | | | 214,113 | | Q1 2020 | 943 | | | 1,703,022 | | | 214,113 | |
Q2 2020 | | Q2 2020 | 754 | | | 1,305,875 | | | 147,939 | |
Q3 2020 | | Q3 2020 | 735 | | | 1,782,733 | | | 170,131 | |
Q4 2020 | | Q4 2020 | 558 | | | 1,036,332 | | | 127,689 | |
Q1 2021 | | Q1 2021 | 749 | | | 1,328,865 | | | 170,178 | |
Liquidity and Capital Resources
Liquidity
The following table summarizes our cash flow activities for the periods presented (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2020 | | 2019 |
| (Unaudited) | | |
Net cash provided by operating activities | $ | 70,805 | | | $ | 10,991 | |
Net cash used in investing activities | (43,255) | | | (69,514) | |
Net cash (used in) provided by financing activities | (21,762) | | | 71,547 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 |
| (Unaudited) |
Net cash provided by operating activities | $ | 69,119 | | | $ | 70,805 | |
Net cash provided by (used in) investing activities | 95,267 | | | (43,255) | |
Net cash used in financing activities | (160,110) | | | (21,762) | |
Operating Cash Flows
Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities.
Net cash provided by operating activities was $69.1 million and $70.8 million during the three months ended March 31, 2021 and 2020, respectively. Operating cash flows are derived by adjusting net income for non-cash operating items such as depreciation and amortization, changes in expected future recoveries, allowance charges and stock-based compensation charges, and changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations.
Investing Cash Flows
Cash flow relating to investing activities is primarily affected by receivable portfolio purchases offset by collection proceeds applied to the principal of our receivable portfolios.
Net cash provided by operatinginvesting activities was $70.8$95.3 million and $11.0 million duringfor the three months ended March 31, 2020 and 2019, respectively. Included in the net loss of $10.6 million during the three months ended March 31, 2020 was an adjustment of $98.7 million due to the changes in our expected current and future recoveries. After adjusting for this item, net cash provided by operating activities significantly increased. Additionally, prepaid income tax and income taxes payable provided $15.0 million and consumed $30.2 million of cash during the three months ended March 31, 2020 and 2019, respectively, while accounts payable, accrued liabilities and other liabilities consumed $46.5 million and $67.8 million during the three months ended March 31, 2020 and 2019, respectively.
Investing Cash Flows
2021. Net cash used in investing activities was $43.3 million and $69.5 million during the three months ended March 31, 2020 and 2019, respectively.2020. 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, net of the change in principal balance due to the change in expected future recoveries or allowance adjustments.portfolios. Receivable portfolio purchases, net of put-backs, were $209.0$167.0 million and $258.6$209.0 million during the three months ended March 31, 20202021 and 2019,2020, respectively. Collection proceeds applied to the principal of our receivable portfolios, net, were $169.9$268.4 million and $202.7$169.9 million during the three months ended March 31, 20202021 and 2019, respectively. Capital expenditures for fixed assets acquired with internal cash flows were $7.5 million and $10.2 million for the three months ended March 31, 2020, and 2019, respectively.
Financing Cash Flows
Net cash used in financing activities was $160.1 million and $21.8 million during the three months ended March 31, 2021 and 2020, and net cash provided by financing activities was $71.5 million during the three months ended March 31, 2019.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 $171.9$273.3 million and $196.3$171.9 million during the three months ended March 31, 20202021 and 2019,2020, respectively. Repayments of amounts outstanding under our credit facilities were $167.2$235.4 million and $119.9$167.2 million during the three months ended March 31, 2021 and 2020, and 2019, respectively. RepaymentWe paid $161.0 million of convertible senior secured notes was $16.3 million during the three months endedthat matured on March 31, 2020.15, 2021 using cash on hand.
Capital Resources
Historically, we have met our cash requirements by utilizing our cash flows from operations, cash collections from our investment in receivable portfolios, bank borrowings, debt offerings, and equity offerings. Depending on the capital markets, we consider additional financings to fund our operations and acquisitions. We continue to explore possible synergies with respect to Cabot, including in connection with potential debt financing options. From time to time, we may repurchase outstanding debt or equity and/or restructure or refinance debt obligations. Our primary cash requirements have included the purchase of receivable portfolios, entity acquisitions, operating expenses, the payment of interest and principal on borrowings, and the payment of income taxes.
Currently, all of our portfolio purchases are funded with cash from operations, cash collections from our investment in receivable portfolios, and our bank borrowings.
We are in material compliance with all covenants under our financing arrangements. See “Note 8:7: Borrowings” in the notes to our consolidated financial statements for a further discussion of our debt.
On August 12, 2015, our Board of Directors approved a $50.0 million share repurchase program. On May 5, 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 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 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 any time at our discretion. During the three months ended March 31, 2021, we repurchased 517,860 shares of our common stock for approximately $20.4 million, or $39.37 per share. Our practice is to retire the shares repurchased.
In May 2021, we terminated our at-the-market equity offering program (the “ATM Program”) pursuant to which we could issue and sell shares of Encore’s common stock having an aggregate offering price of $50.0 million.
Our cash and cash equivalents as of March 31, 20202021 consisted of $55.7$34.6 million held by U.S.-based entities and $132.5$150.0 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 U.S. sources of cash and liquidity are sufficient to meet our business needs in the United States.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 $19.4$23.0 million as of March 31, 2020.2021.
Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, including timing of cash collections from our consumers, and other risks detailed in our Risk Factors. However, we believe that we have sufficient liquidity to fund our operations for at least the next twelve months, given our expectation of continued positive cash flows from operations, cash collections from our investment in receivable portfolios, our cash and cash equivalents, our access to capital markets, and availability under our credit facilities. Our future cash needs will depend on our acquisitions of portfolios and businesses.
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Rates. As of March 31, 2020,2021, there had not been a material change in any of the foreign currency risk information disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.
Interest Rates. As of March 31, 2020,2021, there had not been a material change in the interest rate risk information disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.
Item 4 – Controls and Procedures
Attached as exhibits to this Form 10-Q are the certifications required by Rule 13a-14 of the Securities Exchange Act of 1934, as amended. This section includes information concerning the controls and controls evaluation referred to in the certifications.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”) and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and accordingly, management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on their most recent evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act are effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
Except as noted below there were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On January 1, 2020, we adopted the new accounting standard for Financial Instruments - Credit Losses (“CECL”). As a result, we implemented changes to policies, processes, systems, and controls over estimating the allowance for credit losses.
We have not experienced any material impact to our internal controls over financial reporting due to the COVID-19 pandemic even though many of our employees are working remotely. We are continually monitoring and assessing the impact of the COVID-19 pandemic on our internal controls to minimize the impact on their design and operating effectiveness.
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
Information with respect to this item may be found in “Note 11,10: Commitments and Contingencies,” to the consolidated financial statements.
Item 1A – Risk Factors
Except for the additional risk factor set forth below, thereThere is no material change in the information reported under “Part I-Item 1A-Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
The impact of the COVID-19 pandemic and the measures implemented to contain the spread of the virus have had, and are expected to continue to have, a material adverse impact on our business and results of operations.
The COVID-19 pandemic and resulting containment measures have caused economic and financial disruptions that have adversely affected, and could continue to materially adversely affect, our business and results of operations. The extent to which the pandemic will continue to materially adversely affect our business and results of operations will depend on future developments that we are not able to predict, including the duration, spread and severity of the outbreak; 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 can resume. It is also possible that any adverse impacts of the pandemic and containment measures may continue once the pandemic is controlled and the containment measures are lifted.2020.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases of Equity Securities
The COVID-19 pandemic and resulting containment measures have contributed to among other things:
•Adverse impacts on our daily business operations and our ability to perform necessary business functions, including as a result of illness or as a result of restrictions on movement, which has caused expected delays in collections;
•Widespread changes to financial and economic conditions of consumers, which has reduced our ability to collect on our consumer receivable portfolios;
•Uncertainty in certain jurisdictionsfollowing table presents information with respect to near-term availabilitypurchases of receivable portfolios that meet our purchasing standards;
•Governmental actions discussed, proposedcommon stock of the Company during the three months ended March 31, 2021, by the Company or taken to provide formsan “affiliated purchaser” of relief, suchthe Company, as limiting debt collections efforts and encouraging or requiring extensions, modifications or forbearance, with respect to certain loans and fees;
•Impacts ondefined in Rule 10b-18(a)(3) under the court system and the legal process, which has impacted our ability to collect through the litigation process;
•Adverse impacts on third-party service providers;
•Adverse impacts on capital and credit market conditions, which may limit our access to funding, increase our cost of capital, and affect our ability to meet liquidity needs;
•Increased spending on business continuity efforts and readiness efforts for returning to our offices, which may in turn require that we cut costs and investments in other areas; and
•An increased risk of an information or cyber-security incident, fraud or a failure in the effectiveness of our compliance programs due to, among other things, an increase in remote work.Exchange Act:
| | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)(2) | | Maximum Number of Shares (or Approximate Dollar Value) That May Yet Be Purchased Under the Publicly Announced Plans or Programs(1) |
January 1, 2021 to January 31, 2021 | — | | | $ | — | | | — | | | $ | 50,000,000 | |
February 1, 2021 to February 28, 2021 | 11,142 | | | $ | 32.41 | | | 11,142 | | | $ | 49,638,834 | |
March 1, 2021 to March 31, 2021 | 506,718 | | | $ | 39.53 | | | 506,718 | | | $ | 29,610,273 | |
Total | 517,860 | | | $ | 39.37 | | | 517,860 | | | $ | 29,610,273 | |
________________________
(1)On January 1, 2020August 12, 2015, we adopted CECL. Our abilitypublicly announced that our Board of Directors had authorized a stock repurchase program for the Company to accurately forecast future losses under CECL may be impaired bypurchase $50.0 million of our Company’s common stock. On May 5, 2021, we publicly announced that our Board of Directors had authorized a $250.0 million increase to the significant uncertainty surroundingstock repurchase program, which increased the COVID-19 pandemic and containment measures and the lack of comparable precedent.
We do not yet know the full extent of how COVID-19 and the resulting containment measures will affect our business, results of operations and financial condition. However, the effects are likely to have a material impact on our business and results of operations and heighten manysize of the other risks described inprogram from $50.0 million to $300.0 million.
(2)This column discloses the “Risk Factors” sectionnumber of our Annual Report on Form 10-K forshares purchased pursuant to the year ended December 31, 2019.program during the indicated time periods.
Item 6 – Exhibits
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Number | | | Description |
3.1.1 | | | |
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3.1.2 | | | |
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3.1.3 | | | |
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3.3 | | | |
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10.1 | | | |
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10.2+ | | | |
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31.1 | | | |
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31.2 | | | |
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32.1 | | | |
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101.INS | | | XBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document. (filed herewith) |
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101.SCH | | | XBRL Taxonomy Extension Schema Document (filed herewith) |
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101.CAL | | | XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) |
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101.DEF | | | XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) |
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101.LAB | | | XBRL Taxonomy Extension Label Linkbase Document (filed herewith) |
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101.PRE | | | XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) |
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104 | | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 |
+ Management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements 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. | | |
| | | |
| By: | | /s/ Jonathan C. Clark |
| | | Jonathan C. Clark |
| | | Executive Vice President, |
| | | Chief Financial Officer and Treasurer |
| | | |
| | | /s/ Peter Reck |
| | | Peter Reck |
| | | Vice President, |
| | | Chief Accounting Officer |
Date: May 11, 20205, 2021