Item 7. Management’s Discussion and Analysis
Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to help investors understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion together with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains “forward-looking statements” relating to Encore Capital Group, Inc. (“Encore”) and its subsidiaries (which we may collectively refer to as the “Company,” “we,” “our” or “us”) within the meaning of the securities laws. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” “intend,” “plan,” “will,” “may,” and similar expressions often characterize forward-looking statements. These statements may include, but are not limited to, projections of collections, revenues, income or loss, estimates of capital expenditures, plans for future operations, products or services, and financing needs or plans, as well as assumptions relating to these matters. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we caution that these expectations or predictions may not prove to be correct or we may not achieve the financial results, savings or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control or cannot be predicted or quantified, that could cause actual results to differ materially from those suggested by the forward-looking statements. Many factors including, but not limited to, those set forth in this Annual Report on Form 10-K under “Part I, Item 1A—Risk Factors,” could cause our actual results, performance, achievements, or industry results to be very different from the results, performance, achievements or industry results expressed or implied by these forward-looking statements. Our business, financial condition, or results of operations could also be materially and adversely affected by other factors besides those listed. Forward-looking statements speak only as of the date the statements were made. We do not undertake any obligation to update or revise any forward-looking statements to reflect new information or future events, or for any other reason, even if experience or future events make it clear that any expected results expressed or implied by these forward-looking statements will not be realized. In addition, it is generally our policy not to make any specific projections as to future earnings, and we do not endorse projections regarding future performance that may be made by third parties.
Our Business
We are an international specialty finance company providing debt recovery solutions and other related services for consumers across a broad range of financial assets. We 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 in Europe.
Encore Capital Group, Inc. (“Encore”) has three business units: MCM, which consists of Midland Credit Management, Inc. and its subsidiaries and domestic affiliates; Cabot, which consists of Cabot Credit Management Limited (“CCM”) and its subsidiaries and European affiliates, and LAAP, which is comprised of our investments and operations in Latin America and Asia-Pacific.
MCM (United States)
Through MCM, we are a market leader in portfolio purchasing and recovery in the United States.
Cabot (Europe)
Through Cabot, we are one of the largest credit management services providers in Europe and the United Kingdom. Cabot, in addition to its primary business of portfolio purchasing and recovery, also provides a range of debt servicing offerings such as early stage collections, business process outsourcing (“BPO”), and contingent collections, including through Wescot Credit Services Limited (“Wescot”).
LAAP (Latin America and Asia-Pacific)
We have purchased non-performing loans in Mexico. Additionally, we have a subsidiary 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.
28
Table of Contents
Government Regulation
As discussed in more detail under “Part I - Item 1—Business - Government Regulation” contained in this Annual Report on Form 10-K, our operations in the United States are subject to federal, state and municipal statutes, rules, regulations and ordinances that establish specific guidelines and procedures that debt purchasers and collectors must follow when collecting consumer accounts, including among others, specific guidelines and procedures for communicating with consumers and prohibitions on unfair, deceptive or abusive debt collection practices. Additionally, our operations in Europe are affected by foreign statutes, rules and regulations regarding debt collection and debt purchase activities. These statutes, rules, regulations, ordinances, guidelines and procedures are modified from time to time by the relevant authorities charged with their administration, which could affect the way we conduct our business.
Portfolio Purchasing and Recovery
MCM (United States)
In the United States, the defaulted consumer receivable portfolios we purchase are primarily charged-off credit card debt portfolios. A small percentage of our capital deployment in the United States is comprised of receivable portfolios subject to Chapter 13 and Chapter 7 bankruptcy proceedings.
We purchase receivables based on robust, account-level valuation methods and employ proprietary statistical and behavioral models across our U.S. operations. These methods and models generally allow us to value portfolios accurately (limiting the risk of overpaying), avoid buying portfolios that are incompatible with our methods or strategies and align the accounts we purchase with our business channels to maximize future collections. As a result, we have generally been able to realize significant returns from the receivables we acquire. We maintain strong relationships with many of the largest financial service providers in the United States.
Cabot (Europe)
In Europe, our purchased defaulted debt portfolios primarily consist of credit card and consumer loan accounts. We purchase receivable portfolios using a proprietary pricing model that utilizes account-level statistical and behavioral data. This model generally allows us to value portfolios accurately and quantify portfolio performance in order to maximize future collections. As a result, we have generally been able to realize significant returns from the assets we have acquired. We maintain strong relationships with many of the largest financial services providers in the United Kingdom and Europe.
Purchases and Collections
Portfolio Pricing, Supply and Demand
MCM (United States)
With lending reaching record levels and the highest U.S. charge-off rate in ten years, supply remains elevated at a record level. Issuers have continued to sell predominantly fresh portfolios. Fresh portfolios are portfolios that are generally sold within six months of the consumer’s account being charged-off by the financial institution. Pricing in the fourth quarter remained at favorable levels as a result of elevated market supply. Issuers continue to sell their volume in mostly forward flow arrangements that are often committed early in the calendar year. We believe growth in lending and rising delinquency rates will drive continued growth in supply.
We believe that smaller competitors continue to face difficulties in the portfolio purchasing market because of the high cost to operate due to regulatory pressure and increasing cost of capital. We believe this favors larger participants, like MCM, because the larger market participants are better able to adapt to these pressures and commit to larger forward flow agreements and fluctuating volumes.
Cabot (Europe)
The UK market for charged-off portfolios generally provides a relatively consistent pipeline of opportunities, despite a historically low level of charge-off rates, as creditors had embedded debt sales as an integral part of their business models. The percentage of volume that is sold in multi-year forward flow arrangements is increasing.
France and Spain continue to be two of the largest markets in Europe with significant portfolio sales. Financial institutions continue to look to dispose of non-performing loans in these markets.
While we have seen sales activity across all of our European markets, underlying default rates are generally low by historic levels, and consumer lending volumes have stagnated. Sales levels are expected to fluctuate from quarter to quarter. In
29
Table of Contents
general, portfolio pricing remains competitive across our European footprint, constraining the amount of capital we can deploy in Europe.
Purchases by Geographic Location
The following table summarizes purchases of receivable portfolios by geographic location during the periods presented (in thousands):
Year Ended December 31,
2024 2023 2022
MCM (United States) $ 998,853 $ 814,557 $ 556,000
Cabot (Europe) 353,182 259,255 244,507
Total purchases of receivable portfolios $ 1,352,035 $ 1,073,812 $ 800,507
In the United States, capital deployment increased during both the year ended December 31, 2024, as compared to 2023, and during the year ended December 31, 2023, as compared to 2022. The majority of our deployments in the U.S. come from forward flow agreements, and the timing, contract duration, and volumes for each contract can fluctuate leading to variation when comparing to prior periods. Portfolio purchases in the U.S. were robust as supply increased and pricing remained at favorable levels.
In Europe, capital deployment increased during both the year ended December 31, 2024, as compared to 2023, and during the year ended December 31, 2023, as compared to 2022. Pricing continues to remain competitive in our European footprint; constraining the amount of capital we can deploy in Europe. Capital deployment stayed relatively limited during the nine months ended September 30, 2024. During the fourth quarter of 2024, we made three large spot purchases totaling approximately $145.4 million and as a result, capital deployment increased by $93.9 million during the year ended December 31, 2024, as compared to the year ended December 31, 2023.
Collections from Purchased Receivables by Channel and Geographic Location
We utilize three channels for the collection of our purchased receivables: call center and digital collections; legal collections; and collection agencies. The call center and digital collections channel consists of collections that result from our call centers, direct mail program and online collections. The legal collections channel consists of collections that result from our internal legal channel or from our network of retained law firms. The collection agencies channel consists of collections from third-party collections agencies to whom we pay a fee or commission. We utilize this channel to supplement capacity in our internal call centers, to service accounts in regions where we do not have collections operations or for accounts purchased where we maintain the collection agency servicing relationship.
The following table summarizes the total collections by collection channel and geographic area during the periods presented ( in thousands ):
Year Ended December 31,
2024 2023 2022
MCM (United States):
Call center and digital collections $ 991,051 $ 783,164 $ 772,728
Legal collections 560,699 526,197 581,078
Collection agencies 19,904 5,221 1,126
Subtotal 1,571,654 1,314,582 1,354,932
Cabot (Europe):
Call center and digital collections 249,472 217,784 203,378
Legal collections 200,211 189,406 193,348
Collection agencies 138,348 136,841 156,545
Subtotal 588,031 544,031 553,271
Other geographies: 2,793 3,954 3,334
Total collections from purchased receivables $ 2,162,478 $ 1,862,567 $ 1,911,537
Gross collections from purchased receivables increased by $299.9 million, or 16.1%, to $2,162.5 million during the year ended December 31, 2024, from $1,862.6 million during the year ended December 31, 2023. The increase in collections in the United States was primarily a result of consistent increases in capital deployments in the United States in recent years. The
30
Table of Contents
increase in collections from purchased receivables in Europe was primarily due to the acquisition of portfolios with higher returns in recent periods. Additionally, collections in Europe were favorably impacted by foreign currency translation by approximately $10.5 million, during the year ended December 31, 2024, primarily as a result of the weakening of the U.S. dollar against the British Pound by approximately 2.7% for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Gross collections from purchased receivables remained relatively stable during the year ended December 31, 2023, as compared to gross collections during the year ended December 31, 2022.
Results of Operations
Results of operations, in dollars and as a percentage of total revenues, were as follows for the periods presented (in thousands, except percentages) :
Year Ended December 31,
2024 2023 2022
Revenues
Revenue from receivable portfolios $ 1,302,567 99.0 % $ 1,204,437 98.5 % $ 1,202,361 85.9 %
Changes in recoveries (89,740) (6.8) % (82,530) (6.7) % 93,145 6.7 %
Total debt purchasing revenue 1,212,827 92.2 % 1,121,907 91.8 % 1,295,506 92.6 %
Servicing revenue 84,783 6.4 % 83,136 6.8 % 94,922 6.8 %
Other revenues 18,751 1.4 % 17,637 1.4 % 7,919 0.6 %
Total revenues 1,316,361 100.0 % 1,222,680 100.0 % 1,398,347 100.0 %
Operating expenses
Salaries and employee benefits 422,910 32.1 % 391,532 32.0 % 375,135 26.8 %
Cost of legal collections 259,298 19.7 % 224,252 18.3 % 217,944 15.6 %
General and administrative expenses 163,847 12.4 % 144,862 11.8 % 145,798 10.4 %
Other operating expenses 130,802 9.9 % 111,179 9.1 % 111,234 8.0 %
Collection agency commissions 30,596 2.3 % 35,657 2.9 % 35,568 2.5 %
Depreciation and amortization 32,434 2.5 % 41,737 3.4 % 46,419 3.3 %
Goodwill impairment 100,600 7.6 % 238,200 19.5 % — — %
Impairment of assets 18,544 1.4 % 18,726 1.5 % 4,075 0.3 %
Total operating expenses 1,159,031 87.9 % 1,206,145 98.5 % 936,173 66.9 %
Income from operations 157,330 12.1 % 16,535 1.5 % 462,174 33.1 %
Other expense
Interest expense (252,545) (19.2) % (201,877) (16.5) % (153,308) (11.0) %
Loss on extinguishment of debt (7,832) (0.6) % — — % — — %
Other income 6,832 0.4 % 5,078 0.3 % 2,123 0.1 %
Total other expense (253,545) (19.4) % (196,799) (16.2) % (151,185) (10.9) %
(Loss) income before income taxes (96,215) (7.3) % (180,264) (14.7) % 310,989 22.2 %
Provision for income taxes (43,029) (3.3) % (26,228) (2.1) % (116,425) (8.3) %
Net (loss) income $ (139,244) (10.6) % $ (206,492) (16.8) % $ 194,564 13.9 %
31
Table of Contents
Comparison of Results of Operations
Our Annual Report on Form 10-K for the year ended December 31, 2023 includes discussion and analysis of our financial condition and results of operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Revenues
Our revenues primarily include debt purchasing revenue, which is revenue recognized from engaging in debt purchasing and recovery activities. We apply our charge-off policy and fully write-off the amortized costs ( i.e. , face value net of noncredit discount) of the individual receivables we acquire immediately after purchasing the portfolio. We then record a negative allowance that represents the present value of all expected future recoveries for pools of receivables that share similar risk characteristics using a discounted cash flow approach, which is presented as “Investment in receivable portfolios, net” in our consolidated statements of financial condition. The discount rate is an effective interest rate (or “purchase EIR”) established based on the purchase price of the portfolio and the expected future cash flows at the time of purchase.
Debt purchasing revenue includes two components:
(1) Revenue from receivable portfolios , which is the accretion of the discount on the negative allowance due to the passage of time (generally the portfolio balance multiplied by the EIR), and
(2) Changes in recoveries , which includes:
(a) Recoveries above (below) forecast, which is the difference between (i) actual cash collected/recovered during the current period and (ii) expected cash recoveries for the current period, which generally represents over or under performance for the period; and
(b) Changes in expected future recoveries, which is the present value change of expected future recoveries, where such change generally results from (i) collections “pulled forward from” or “pushed out to” future periods (i.e. amounts either collected early or expected to be collected later) and (ii) magnitude and timing changes to estimates of expected future collections (which can be increases or decreases).
Certain pools already fully recovered their cost basis and became zero basis portfolios (“ZBA”) prior to our adoption of the accounting standard for Financial Instruments - Credit Losses (“CECL”) in January 2020. We did not establish a negative allowance for these pools as we elected the Transition Resource Group for Credit Losses’ practical expedient to retain the integrity of these legacy pools. Similar to how we treated ZBA collections prior to the adoption of CECL, all subsequent collections to the ZBA pools are recognized as ZBA revenue, which is included in revenue from receivable portfolios in our consolidated statements of operations. We expect our ZBA revenue to continue to decline as we collect on these legacy pools. We do not expect to have new ZBA pools in the future.
Servicing revenue consists primarily of fee-based income earned on accounts collected on behalf of others, primarily credit originators. We earn fee-based income by providing debt servicing (such as early stage collections, BPO, contingent collections, trace services and litigation activities) to credit originators for non-performing loans in Europe.
Other revenues primarily include revenues recognized from the sale of real estate assets that are acquired as a result of our investments in non-performing secured residential mortgage portfolios and real estate assets in Europe and LAAP.
32
Table of Contents
The following table summarizes revenues for the periods presented ( in thousands, except percentages) :
Year Ended December 31,
2024 2023 $ Change % Change
Revenue recognized from portfolio basis $ 1,279,467 $ 1,176,835 $ 102,632 8.7 %
ZBA revenue 23,100 27,602 (4,502) (16.3) %
Revenue from receivable portfolios 1,302,567 1,204,437 98,130 8.1 %
Recoveries above (below) forecast
78,202 (33,405) 111,607
Changes in expected future recoveries (167,942) (49,125) (118,817)
Changes in recoveries (89,740) (82,530) (7,210) 8.7 %
Debt purchasing revenue 1,212,827 1,121,907 90,920 8.1 %
Servicing revenue 84,783 83,136 1,647 2.0 %
Other revenues 18,751 17,637 1,114 6.3 %
Total revenues $ 1,316,361 $ 1,222,680 $ 93,681 7.7 %
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 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 revenue was favorably impacted by foreign currency translation by approximately $6.2 million, during the year ended December 31, 2024, primarily as a result of the weakening of the U.S. dollar against the British Pound by approximately 2.7% for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
The increase in revenue recognized from portfolio basis during the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to a higher portfolio basis ( i.e. a higher investment in receivable balance) in the U.S. driven by a consistent higher volume of purchases in recent years.
Recoveries above or below forecast represent over and under-performance in the reporting period, respectively and are expected to vary from period to period. Collections over-performed the forecasted collections by approximately $78.2 million during the year ended December 31, 2024. Collections under-performed the forecasted collections by approximately $33.4 million during the year ended December 31, 2023. The over and under performance in the periods presented represented only a small fraction of total collections in the corresponding periods.
We reassess the forecasts of expected lifetime recoveries each quarter by considering, among other factors, historical and current collection performance, changes in consumer behaviors, and macroeconomic environment. During the fourth quarter of 2024, we deployed a new U.K. forecasting model that develops expected future recoveries for investment in receivable portfolios at Cabot. The new model update was primarily driven by recent changes in Cabot as it continues to acquire portfolios that have more dynamic characteristics and are better forecasted utilizing a model that processes data inputs at a more granular level. As part of the new model development process, management updated certain model inputs driven by collection experience, operational performance and recent changes in collection strategies. This new forecasting model was applied to all vintages, which resulted in a change in the estimate of expected future recoveries. This change in accounting estimate reduced Cabot’s estimated remaining collections by $361.6 million, which when discounted to present value, resulted in a negative change in expected future recoveries of $75.3 million. Additionally, we recognized approximately $22.2 million of negative changes in expected future recoveries resulting from the sale of our investment in receivable portfolios associated with the exit of our Italian debt purchasing and recovery business in November 2024. These significant changes in expected recoveries at Cabot during the fourth quarter of 2024, combined with changes driven by recurring reassessments of the expected future recoveries, reduced Cabot’s total estimated remaining collections by $452.9 million, which when discounted to present value, resulted in a net negative change in expected future recoveries of $129.1 million during the fourth quarter of 2024.
As a result of all the above during the fourth quarter, and the negative changes recorded during the previous quarters in 2024, we recorded a total net negative change in expected future recoveries of approximately $167.9 million during the year ended December 31, 2024. We recorded approximately $49.1 million in net negative change in expected future recoveries during the year ended December 31, 2023.
33
Table of Contents
The following tables summarize collections from purchased receivables, revenue from receivable portfolios, end of period receivable balance and other related supplemental data, by year of purchase ( in thousands, except percentages ):
Year Ended December 31, 2024 As of December 31, 2024
Collections Revenue from Receivable Portfolios Changes in Recoveries Investment in Receivable Portfolios Monthly EIR
United States:
ZBA $ 23,097 $ 23,097 $ — $ — — %
2011 10,113 8,961 973 822 88.6 %
2012 10,487 10,436 (876) 1,542 42.0 %
2013 26,140 23,173 1,541 4,173 40.5 %
2014 16,983 11,294 2,158 12,741 6.7 %
2015
15,890 7,899 4,089 15,137 3.9 %
2016
27,972 14,463 5,068 25,059 4.2 %
2017
40,123 24,203 3,683 30,546 5.6 %
2018
64,231 34,103 4,148 57,724 4.0 %
2019
112,391 61,473 (1,517) 108,256 3.8 %
2020
127,555 69,461 (2,867) 126,055 3.7 %
2021
131,870 69,185 6,921 119,734 3.9 %
2022
254,329 121,998 (2,765) 262,669 3.1 %
2023
471,838 277,750 16,152 610,793 3.3 %
2024 238,635 173,924 23,821 954,105 3.4 %
Subtotal 1,571,654 931,420 60,529 2,329,356 3.6 %
Europe:
ZBA 3 3 — — — %
2013
53,805 46,361 (18,377) 97,720 3.2 %
2014
50,220 40,518 (19,840) 87,270 3.0 %
2015
34,541 24,845 (10,459) 67,144 2.5 %
2016 30,143 22,156 (7,416) 56,323 2.7 %
2017 41,211 25,293 (8,463) 92,872 1.9 %
2018
42,379 26,759 (27,184) 107,036 1.6 %
2019
47,174 27,687 (10,131) 100,030 1.9 %
2020
31,454 20,055 (11,885) 53,577 2.2 %
2021 52,278 34,892 (21,063) 116,711 1.9 %
2022 64,555 34,045 (14,916) 142,813 1.5 %
2023 89,799 39,774 (3,124) 187,267 1.5 %
2024 50,469 28,759 361 321,419 2.2 %
Subtotal 588,031 371,147 (152,497) 1,430,182 2.1 %
Other geographies: (1)
All vintages 2,793 — 2,228 16,831 — %
Subtotal 2,793 — 2,228 16,831 — %
Total $ 2,162,478 $ 1,302,567 $ (89,740) $ 3,776,369 3.0 %
_______________________
(1) All portfolios are on non-accrual basis. Annual pool groups for other geographies have been aggregated for disclosure purposes.
34
Table of Contents
Year Ended December 31, 2023 As of December 31, 2023
Collections Revenue from Receivable Portfolios Changes in Recoveries Investment in Receivable Portfolios Monthly EIR
United States:
ZBA $ 27,584 $ 27,584 $ — $ — —%
2011 13,276 12,519 434 1,003 88.6%
2012 15,881 14,209 1,062 2,479 42.0%
2013 34,529 32,570 157 5,601 40.5%
2014 20,910 13,873 3,965 16,271 6.7%
2015 19,518 10,665 1,541 19,042 3.9%
2016 35,130 19,773 2,343 33,504 4.2%
2017 57,985 35,121 3,380 42,838 5.5%
2018 89,548 51,015 (6,206) 83,861 4.0%
2019 164,106 91,341 (2,668) 160,976 3.8%
2020 194,522 104,555 (3,622) 187,358 3.7%
2021 188,895 109,241 (23,969) 175,906 3.9%
2022 268,516 179,175 (51,222) 398,824 3.1%
2023
184,182 136,249 29,359 793,117 3.2%
Subtotal 1,314,582 837,890 (45,446) 1,920,780 3.7%
Europe:
ZBA 18 18 — — —%
2013 57,747 51,931 (12,684) 125,541 3.2%
2014 54,537 44,640 (4,516) 119,369 3.0%
2015 36,237 27,317 (1,928) 89,034 2.5%
2016 (1)
35,272 24,957 2,863 76,499 2.8%
2017 48,763 29,652 (4,282) 120,508 1.9%
2018 49,675 31,967 (10,229) 157,616 1.6%
2019 54,544 31,767 1,059 133,484 1.9%
2020 37,363 23,939 920 83,638 2.2%
2021 58,515 40,972 (10,828) 166,490 1.9%
2022
70,385 40,530 (5,161) 199,024 1.6%
2023
40,975 18,857 7,258 248,185 1.5%
Subtotal 544,031 366,547 (37,528) 1,519,388 2.0%
Other geographies: (2)
All vintages 3,954 — 444 28,264 —%
Subtotal 3,954 — 444 28,264 —%
Total $ 1,862,567 $ 1,204,437 $ (82,530) $ 3,468,432 3.0%
_______________________
(1) Portfolio balance includes non-accrual pool groups. The EIR presented is only for pool groups that accrete portfolio revenue.
(2) All portfolios are on non-accrual basis. Annual pool groups for other geographies have been aggregated for disclosure purposes.
Servicing revenues and other revenues remained relatively consistent during the year ended December 31, 2024, as compared to the year ended December 31, 2023.
35
Table of Contents
Operating Expenses
The following table summarizes operating expenses during the periods presented ( in thousands, except percentages ):
Year Ended December 31,
2024 2023 $ Change % Change
Salaries and employee benefits $ 422,910 $ 391,532 $ 31,378 8.0 %
Cost of legal collections 259,298 224,252 35,046 15.6 %
General and administrative expenses 163,847 144,862 18,985 13.1 %
Other operating expenses 130,802 111,179 19,623 17.6 %
Collection agency commissions 30,596 35,657 (5,061) (14.2) %
Depreciation and amortization 32,434 41,737 (9,303) (22.3) %
Goodwill impairment
100,600 238,200 (137,600) (57.8) %
Impairment of assets
18,544 18,726 (182) (1.0) %
Total operating expenses $ 1,159,031 $ 1,206,145 $ (47,114) (3.9) %
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 unfavorably impacted by foreign currency translation by approximately $7.2 million, during the year ended December 31, 2024, primarily as a result of the weakening of the U.S. dollar against the British Pound by approximately 2.7% for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Operating expenses are explained in more detail as follows:
Salaries and Employee Benefits
The increase in salaries and employee benefits during the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to the following reasons:
• An increase in salaries and bonus of approximately $22.6 million primarily due to an increase in overall average headcount and general increase in wage during the year ended December 31, 2024 as compared to 2023; and
• An increase in employee benefits and payroll taxes of approximately $8.6 million.
Cost of Legal Collections
Cost of legal collections primarily includes contingent fees paid to our external network of attorneys and the cost of litigation. We pursue legal collections using a network of attorneys that specialize in collection matters and through our internal legal channel. Under the agreements with our contracted attorneys, we advance certain out-of-pocket court costs. Cost of legal collections does not include internal legal channel employee costs, which are included in salaries and employee benefits in our consolidated statements of operations.
The following table summarizes our cost of legal collections during the periods presented ( in thousands, except percentages ):
Year Ended December 31,
2024 2023 $ Change % Change
Court costs $ 170,528 $ 134,200 $ 36,328 27.1 %
Legal collection fees 88,770 90,052 (1,282) (1.4) %
Total cost of legal collections $ 259,298 $ 224,252 $ 35,046 15.6 %
The increase in cost of legal collections during the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to an increase in court costs due to increased legal placements in this channel in the U.S. The increase was partially offset by decreased contingent fees paid to our external network of attorneys as we grow our legal collection activities through our internal legal channel.
36
Table of Contents
General and Administrative Expenses
The increase in general and administrative expenses during the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to the following reasons:
• An increase in information technology expenses of approximately $8.9 million; and
• An increase in consulting fees of approximately $4.5 million; and
• An increase in miscellaneous general and administrative related expenses of approximately $3.8 million.
Other Operating Expenses
The increase in other operating expenses during the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to an increase in postage and printing expenses of approximately $10.3 million and an increase in costs relating to skip tracing of approximately $7.1 million.
Collection Agency Commissions
Collection agency commissions are commissions paid to third-party collection agencies. Collections through the collections agencies channel are predominately in Europe and vary from period to period depending on, among other things, the number of accounts placed with an agency versus accounts collected internally. Commission rates vary depending on, among other things, the amount of time that has passed since the charge-off of the accounts placed with an agency, the asset class, and the geographic location of the receivables. Generally, freshly charged-off accounts have a lower commission rate than accounts that have been charged off for a longer period of time, and commission rates for purchased bankruptcy portfolios are lower than the commission rates for charged-off credit card accounts. Collection agency commissions decreased by approximately $5.1 million during the year ended December 31, 2024, compared to the year ended December 31, 2023. The decrease was primarily due to fewer accounts placed with external agencies and favorable commission rates received from such agencies in Europe.
Depreciation and Amortization
The decrease in depreciation and amortization expenses during the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to a decrease in depreciation expenses of approximately $5.8 million and a decrease in amortizable expenses of approximately $3.5 million as a result of smaller depreciable and amortizable asset balances during the year ended December 31, 2024, compared to the year ended December 31, 2023.
Goodwill Impairment
During the fourth quarter of 2024, we performed our annual goodwill impairment assessment as of October 1, 2024, which did not result in any goodwill impairment charge. Subsequent to the annual goodwill impairment test, we significantly lowered the estimated future recoveries for our investment in receivable portfolios at Cabot during the fourth quarter of 2024, management considered this a triggering event and conducted another quantitative test for goodwill impairment as of December 31, 2024. This subsequent goodwill impairment analysis resulted in an impairment charge for the Cabot reporting unit of $100.6 million. The decline in the fair value of the Cabot reporting unit below its carrying value primarily resulted from changes in expected future cash flows as compared to our previous financial forecasts, and to a lesser extent, a decline in market multiples. We also recorded a goodwill impairment charge of $238.2 million during the year ended December 31, 2023. No triggering events were identified during the interim periods between the two annual goodwill impairment tests. Refer to “Note 15: Goodwill and Identifiable Intangible Assets” to our consolidated financial statements for further details.
Impairment of Assets
During the fourth quarter of 2024, we tested for impairment of our long-lived assets held at our servicing business and recorded an impairment charge relating to the computer systems of approximately $18.5 million. Refer to “Property and Equipment, Net” in “Note 5: Composition of Certain Financial Statement Items” to our consolidated financial statements for further details. We recorded an impairment charge of $18.7 million for our acquired definite-lived intangible assets during the year ended December 31, 2023.
Interest Expense
The following table summarizes our interest expense ( in thousands, except percentages ):
Year Ended December 31,
2024 2023 $ Change % Change
Stated interest on debt obligations $ 236,220 $ 184,717 $ 51,503 27.9 %
Amortization of debt issuance costs 14,763 15,670 (907) (5.8) %
Amortization of debt discount
1,562 1,490 72 4.8 %
Total interest expense $ 252,545 $ 201,877 $ 50,668 25.1 %
37
Table of Contents
The increase in interest expense during the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to the following reasons:
• The effect resulting from rising interest rates of approximately $23.9 million; and
• The effect resulting from increased average debt balance of approximately $25.2 million; and
• An unfavorable impact of foreign currency translation of approximately $1.6 million driven by the weakening of the U.S. dollar against the British Pound.
Loss on Extinguishment of Debt
Loss on extinguishment of debt associated with write-offs of unamortized debt discount and debt issuance costs relating to the early redemptions of our senior secured notes and the refinancing of the Cabot Securitisation Senior Facility was $7.8 million during the year ended December 31, 2024. Refer to “Note 6: Borrowings” in the notes to our consolidated financial statements for details of our financing activities.
Other Income (Expense)
Other income or expense consists primarily of foreign currency exchange gains or losses, interest income and gains or losses recognized on certain transactions outside of our normal course of business. Other income was $6.8 million and $5.1 million during the years ended December 31, 2024 and 2023, respectively. Interest income included in other income, net of other expense, was approximately $7.0 million and $4.7 million during the years ended December 31, 2024 and 2023, respectively.
Provision for Income Taxes
During the years ended December 31, 2024 and 2023, we recorded income tax provisions of $43.0 million and $26.2 million, respectively.
The effective tax rates for the respective periods are shown below:
Year Ended December 31,
2024 2023
Federal provision 21.0 % 21.0 %
State provision (5.7) % (3.0) %
Foreign rate differential (2.8) % 0.6 %
Change in valuation allowance (1)
(32.2) % 7.3 %
Goodwill impairment (2)
(22.4) % (28.3) %
Taxable gain in foreign jurisdiction (3)
2.6 % 2.9 %
Nondeductible compensation (1.2) % (0.6) %
Return to provision adjustments (1.3) % 0.6 %
Forfeit benefit due to merger/liquidations (4)
— % (14.7) %
Other
(2.7) % (0.3) %
Effective rate (44.7) % (14.5) %
________________________
(1) The change in valuation allowance during the year ended December 31, 2024 reflected certain foreign subsidiaries’ operating losses. The change in valuation allowance during the year ended December 31, 2023 was primarily due to the forfeit of tax benefits on merger or liquidation of foreign subsidiaries that maintained full valuation allowances on their deferred tax assets.
(2) During the years ended December 31, 2024 and 2023, we recorded a non-cash goodwill impairment charge of $100.6 million and $238.2 million at our Cabot reporting unit, respectively. Refer to “Note 15: Goodwill and Identifiable Intangible Assets” to our consolidated financial statements for further details.
(3) Represents taxable foreign currency movement recognized in a foreign subsidiary.
(4) Represents the forfeit of tax benefits on merger or liquidation of foreign subsidiaries that maintained full valuation allowances on their deferred tax assets during the year ended December 31, 2023.
Our effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected to the extent earnings are lower than anticipated in countries that have lower statutory tax rates and higher than anticipated in countries that have higher statutory tax rates.
38
Table of Contents
Non-GAAP Disclosure
In addition to the financial information prepared in conformity with Generally Accepted Accounting Principles (“GAAP”), we provide historical non-GAAP financial information. Management believes that the presentation of such non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. Management believes that these non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business.
Management believes that the presentation of these measures provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments, and amortization methods, which provide a more complete understanding of our financial performance, competitive position, and prospects for the future. Readers should consider the information in addition to, but not instead of, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of these measures for comparative purposes.
Adjusted EBITDA. Management utilizes adjusted EBITDA (defined as net income before interest income and expense, taxes, depreciation and amortization, stock-based compensation expenses, acquisition, integration and restructuring related expenses, and other charges or gains that are not indicative of ongoing operations), in the evaluation of our operating performance. Adjusted EBITDA for the periods presented is as follows ( in thousands ):
Year Ended December 31,
2024 2023 2022
GAAP net (loss) income, as reported
$ (139,244) $ (206,492) $ 194,564
Adjustments:
Interest expense 252,545 201,877 153,308
Loss on extinguishment of debt 7,832 — —
Interest income (7,008) (4,746) (1,774)
Provision for income taxes 43,029 26,228 116,425
Depreciation and amortization 32,434 41,737 46,419
Net gain on derivative instruments (1)
(267) (3,170) —
Stock-based compensation expense 14,012 13,854 15,402
Acquisition, integration and restructuring related expenses (2)
10,451 7,401 1,213
Goodwill impairment (3)
100,600 238,200 —
Impairment of assets (3)
18,544 18,726 4,075
Adjusted EBITDA $ 332,928 $ 333,615 $ 529,632
Collections applied to principal balance (4)
$ 1,004,230 $ 776,280 $ 635,262
________________________
(1) Amount represents gain or loss recognized on derivative instruments that are not designated as hedging instruments or gain or loss recognized on derivative instruments upon dedesignation of hedge relationships. We adjust for this amount because we believe the gain or loss on derivative contracts is not indicative of ongoing operations.
(2) Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore, adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(3) During the years ended December 31, 2024 and 2023, we recorded a non-cash goodwill impairment charge of $100.6 million and $238.2 million, respectively. We recorded a non-cash impairment of long-lived assets of $18.5 million and a non-cash impairment of intangible assets of $18.7 million during the years ended December 31, 2024 and 2023, respectively. We believe these non-cash impairment charges are not indicative of ongoing operations, therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results. Refer to “Note 15: Goodwill and Identifiable Intangible Assets” and “Property and Equipment, Net” in “Note 5: Composition of Certain Financial Statement Items” to our consolidated financial statements for further details.
(4) Collections applied to principal balance is calculated in the table below:
Year Ended December 31,
2024 2023 2022
Collections applied to investment in receivable portfolios, net $ 859,911 $ 658,130 $ 709,176
Changes in recoveries
89,740 82,530 (93,145)
Other proceeds applied to basis
54,579 35,620 19,231
Collections applied to principal balance $ 1,004,230 $ 776,280 $ 635,262
39
Table of Contents
Supplemental Performance Data
The tables included in this supplemental performance data section include detail for purchases, collections and ERC by year of purchase.
Our collection expectations are based on account characteristics and economic variables. Additional adjustments are made to account for qualitative factors that may affect the payment behavior of our consumers and servicing related adjustments to ensure our collection expectations are aligned with our operations. We continue to refine our process of forecasting collections both domestically and internationally with a focus on operational enhancements. Our collection expectations vary between types of portfolio and geographic location. As a result, past performance of pools in certain geographic locations or of certain types of portfolio are not necessarily a suitable indicator of future results in other locations or for other types of portfolio.
The supplemental performance data presented in this section is impacted by foreign currency translation, which represents the effect of translating financial results where the functional currency of our foreign subsidiary is different than our U.S. dollar reporting currency. For example, the strengthening of the U.S. dollar relative to other foreign currencies has an unfavorable reporting impact on our international purchases, collections, and ERC, and the weakening of the U.S. dollar relative to other foreign currencies has a favorable impact on our international purchases, collections, and ERC.
We utilize proprietary forecasting models to continuously evaluate the economic life of each pool.
40
Table of Contents
Cumulative Collections Money Multiple - Cumulative Collections from Purchased Receivables to Purchase Price Multiple
The following table summarizes our receivable purchases, related gross collections, and cumulative collections money multiples (in thousands, except multiples) :
Year of
Purchase
Purchase
Price (1)
Cumulative Collections through December 31, 2024
<2015 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Total (2)
CCMM (3)
United States:
<2015 $ 3,762,044 $ 7,258,767 $ 1,076,324 $ 739,743 $ 519,613 $ 372,705 $ 290,351 $ 216,962 $ 186,927 $ 140,814 $ 112,180 $ 86,820 $ 11,001,206 2.9
2015 499,034 — 105,610 231,102 186,391 125,673 85,042 64,133 42,774 25,655 19,518 15,890 901,788 1.8
2016 552,969 — — 110,875 283,035 234,690 159,279 116,452 87,717 51,650 35,130 27,972 1,106,800 2.0
2017 527,442 — — — 111,902 315,853 255,048 193,328 144,243 85,348 57,985 40,123 1,203,830 2.3
2018 629,184 — — — — 175,042 351,696 308,302 228,919 144,566 89,548 64,231 1,362,304 2.2
2019 675,091 — — — — — 174,693 416,315 400,250 256,444 164,106 112,391 1,524,199 2.3
2020 537,689 — — — — — — 213,450 430,514 311,573 194,522 127,555 1,277,614 2.4
2021 403,678 — — — — — — — 120,354 240,605 188,895 131,870 681,724 1.7
2022 549,533 — — — — — — — — 98,277 268,516 254,329 621,122 1.1
2023 807,309 — — — — — — — — — 184,182 471,838 656,020 0.8
2024 994,995 — — — — — — — — — — 238,635 238,635 0.2
Subtotal 9,938,968 7,258,767 1,181,934 1,081,720 1,100,941 1,223,963 1,316,109 1,528,942 1,641,698 1,354,932 1,314,582 1,571,654 20,575,242 2.1
Europe:
<2015 1,242,208 519,115 410,256 322,275 284,799 261,696 218,565 177,458 178,076 134,094 112,284 104,025 2,722,643 2.2
2015 419,941 — 65,870 127,084 103,823 88,065 72,277 55,261 57,817 42,660 36,249 34,544 683,650 1.6
2016 249,584 — — 44,641 97,587 83,107 63,198 51,609 51,017 40,214 35,278 30,143 496,794 2.0
2017 461,571 — — — 68,111 152,926 118,794 87,549 86,107 61,762 48,763 41,211 665,223 1.4
2018 427,030 — — — — 49,383 118,266 78,846 80,629 61,691 49,675 42,379 480,869 1.1
2019 272,905 — — — — — 44,118 80,502 88,448 63,607 54,544 47,174 378,393 1.4
2020 104,940 — — — — — — 22,721 59,803 45,757 37,363 31,454 197,098 1.9
2021 242,825 — — — — — — — 43,082 66,529 58,515 52,278 220,404 0.9
2022 231,869 — — — — — — — — 36,957 70,385 64,555 171,897 0.7
2023 259,255 — — — — — — — — — 40,975 89,799 130,774 0.5
2024 353,182 — — — — — — — — — — 50,469 50,469 0.1
Subtotal 4,265,310 519,115 476,126 494,000 554,320 635,177 635,218 553,946 644,979 553,271 544,031 588,031 6,198,214 1.5
Other geographies (4) :
All vintages 340,283 40,293 42,665 109,884 112,383 108,480 75,601 28,960 20,682 3,334 3,954 2,793 549,029 1.6
Subtotal 340,283 40,293 42,665 109,884 112,383 108,480 75,601 28,960 20,682 3,334 3,954 2,793 549,029 1.6
Total $ 14,544,561 $ 7,818,175 $ 1,700,725 $ 1,685,604 $ 1,767,644 $ 1,967,620 $ 2,026,928 $ 2,111,848 $ 2,307,359 $ 1,911,537 $ 1,862,567 $ 2,162,478 $ 27,322,485 1.9
________________________
(1) Adjusted for Put-Backs and Recalls. Put-Backs (“Put-Backs”) and recalls (“Recalls”) represent ineligible accounts that are returned by us or recalled by the seller pursuant to specific guidelines as set forth in the respective purchase agreement.
(2) Cumulative collections from inception through December 31, 2024, excluding collections on behalf of others.
(3) Cumulative Collections Money Multiple (“CCMM”) through December 31, 2024 refers to cumulative collections as a multiple of purchase price.
(4) Annual pool groups for other geographies have been aggregated for disclosure purposes.
41
Table of Contents
Purchase Price Multiple - Total Estimated Collections from Purchased Receivables to Purchase Price Multiple
The following table summarizes our purchases, resulting historical gross collections, estimated remaining gross collections from purchased receivables, and purchase price multiple (in thousands, except multiples) :
Purchase Price (1)
Historical
Collections (2)
Estimated
Remaining
Collections Total Estimated
Gross Collections Purchase Price Multiple (3)
United States:
<2015 (4)
$ 3,762,044 $ 11,001,206 $ 175,886 $ 11,177,092 3.0
2015
499,034 901,788 31,945 933,733 1.9
2016 552,969 1,106,800 54,832 1,161,632 2.1
2017 527,442 1,203,830 82,495 1,286,325 2.4
2018 629,184 1,362,304 132,023 1,494,327 2.4
2019 675,091 1,524,199 237,245 1,761,444 2.6
2020 537,689 1,277,614 274,934 1,552,548 2.9
2021 403,678 681,724 270,489 952,213 2.4
2022 549,533 621,122 517,472 1,138,594 2.1
2023 807,309 656,020 1,231,890 1,887,910 2.3
2024 994,995 238,635 2,092,352 2,330,987 2.3
Subtotal 9,938,968 20,575,242 5,101,563 25,676,805 2.6
Europe:
<2015 (4)
1,242,208 2,722,643 652,761 3,375,404 2.7
2015 (4)
419,941 683,650 191,234 874,884 2.1
2016 249,584 496,794 161,823 658,617 2.6
2017 461,571 665,223 203,901 869,124 1.9
2018 427,030 480,869 220,865 701,734 1.6
2019 272,905 378,393 215,965 594,358 2.2
2020 104,940 197,098 120,280 317,378 3.0
2021 242,825 220,404 252,798 473,202 1.9
2022 231,869 171,897 263,336 435,233 1.9
2023 259,255 130,774 335,809 466,583 1.8
2024 353,182 50,469 695,102 745,571 2.1
Subtotal 4,265,310 6,198,214 3,313,874 9,512,088 2.2
Other geographies (5) :
All vintages 340,283 549,029 25,448 574,477 1.7
Subtotal 340,283 549,029 25,448 574,477 1.7
Total $ 14,544,561 $ 27,322,485 $ 8,440,885 $ 35,763,370 2.5
________________________
(1) Purchase price refers to the cash paid to a seller to acquire a portfolio less Put-backs, Recalls, and other adjustments. Put-Backs and Recalls represent ineligible accounts that are returned by us or recalled by the seller pursuant to specific guidelines as set forth in the respective purchase agreement.
(2) Cumulative collections from inception through December 31, 2024, excluding collections on behalf of others.
(3) Purchase Price Multiple represents total estimated gross collections divided by the purchase price.
(4) Includes portfolios acquired in connection with certain business combinations.
(5) Annual pool groups for other geographies have been aggregated for disclosure purposes.
42
Table of Contents
Estimated Remaining Gross Collections by Year of Purchase
The following table summarizes our estimated remaining gross collections from purchased receivable portfolios and estimated future cash flows from real estate-owned assets (in thousands) :
Estimated Remaining Gross Collections by Year of Purchase (1)
2025
2026 2027 2028 2029 2030 2031 2032 2033 >2033
Total (2)
United States:
<2015 (3)
$ 62,034 $ 41,309 $ 26,476 $ 17,988 $ 11,858 $ 7,595 $ 4,597 $ 2,623 $ 1,158 $ 248 $ 175,886
2015 11,603 7,051 4,107 2,895 2,043 1,444 1,024 727 518 533 31,945
2016 19,953 11,627 7,097 4,990 3,515 2,481 1,754 1,244 885 1,286 54,832
2017 27,771 17,255 11,461 7,886 5,560 3,930 2,786 1,980 1,413 2,453 82,495
2018 41,799 28,664 19,501 12,869 8,860 6,255 4,429 3,146 2,242 4,258 132,023
2019 77,040 51,336 34,584 23,530 15,622 10,805 7,611 5,375 3,804 7,538 237,245
2020 86,557 60,147 40,788 27,821 18,927 12,644 8,799 6,206 4,388 8,657 274,934
2021 84,650 59,634 39,528 26,912 18,603 12,845 8,783 6,114 4,306 9,114 270,489
2022 168,280 110,188 75,135 49,788 34,372 24,460 17,364 12,089 8,374 17,422 517,472
2023 408,360 256,644 170,674 121,972 85,134 59,950 41,626 29,019 20,081 38,430 1,231,890
2024 542,741 511,967 322,406 214,981 151,775 106,720 75,768 53,087 37,067 75,840 2,092,352
Subtotal 1,530,788 1,155,822 751,757 511,632 356,269 249,129 174,541 121,610 84,236 165,779 5,101,563
Europe:
<2015 (3)
86,244 77,434 67,715 59,618 52,824 46,571 41,310 37,327 33,654 150,064 652,761
2015 (3)
27,064 24,348 21,419 18,069 15,782 13,693 11,921 10,627 9,468 38,843 191,234
2016
24,648 21,696 19,168 16,415 14,031 11,792 10,149 8,536 7,273 28,115 161,823
2017
32,954 28,227 24,694 20,560 17,430 14,718 12,391 10,464 8,981 33,482 203,901
2018
33,511 29,054 25,485 21,176 18,418 16,102 14,121 12,424 10,783 39,791 220,865
2019 37,524 31,327 25,938 21,706 18,050 15,022 12,576 10,730 9,136 33,956 215,965
2020 24,016 18,820 14,795 11,690 9,447 7,756 6,450 5,429 4,597 17,280 120,280
2021 40,709 36,540 30,199 26,340 22,066 19,117 15,905 13,284 11,174 37,464 252,798
2022 50,168 41,476 34,246 27,391 22,310 18,130 15,038 12,446 10,044 32,087 263,336
2023 62,890 53,115 43,972 36,716 29,530 23,549 19,155 15,634 12,789 38,459 335,809
2024 115,279 104,300 85,419 70,653 57,820 47,208 38,974 32,921 28,507 114,021 695,102
Subtotal 535,007 466,337 393,050 330,334 277,708 233,658 197,990 169,822 146,406 563,562 3,313,874
Other geographies (4) :
All vintages 6,176 4,626 3,453 2,610 2,061 1,661 1,305 1,029 804 1,723 25,448
Subtotal 6,176 4,626 3,453 2,610 2,061 1,661 1,305 1,029 804 1,723 25,448
Portfolio ERC 2,071,971 1,626,785 1,148,260 844,576 636,038 484,448 373,836 292,461 231,446 731,064 8,440,885
REO ERC (5)
28,568 22,587 7,259 2,014 57 — — — — — 60,485
Total ERC $ 2,100,539 $ 1,649,372 $ 1,155,519 $ 846,590 $ 636,095 $ 484,448 $ 373,836 $ 292,461 $ 231,446 $ 731,064 $ 8,501,370
________________________
(1) As of December 31, 2024, ERC for Zero Basis Portfolios includes approximately $38.9 million for purchased consumer and bankruptcy receivables in the United States. ERC for Zero Basis Portfolios in Europe and other geographies was immaterial. ERC also include approximately $25.4 million from non-accrual portfolios, primarily in other geographies.
(2) Represents the expected remaining gross cash collections over a 180-month period. As of December 31, 2024, ERC for 84-month was:
84-Month ERC
United States $ 4,729,938
Europe 2,434,084
Other geographies 21,892
Portfolio ERC 7,185,914
REO ERC 60,485
Total ERC $ 7,246,399
(3) Includes portfolios acquired in connection with certain business combinations.
(4) Annual pool groups for other geographies have been aggregated for disclosure purposes.
(5) Real estate-owned assets (“REO”) ERC includes approximately $59.9 million and $0.6 million of estimated future cash flows for Europe and Other Geographies, respectively.
43
Table of Contents
Estimated Future Collections Applied to Investment in Receivable Portfolios
As of December 31, 2024, we had $3.8 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,
United States Europe Other
Geographies Total
Amortization
2025
$ 659,948 $ 212,566 $ 5,004 $ 877,518
2026 554,690 193,249 3,761 751,700
2027 346,737 162,332 2,816 511,885
2028 231,040 135,417 2,137 368,594
2029 160,339 112,623 1,679 274,641
2030 112,460 93,487 1,343 207,290
2031 79,684 78,352 91 158,127
2032 56,069 67,638 — 123,707
2033 39,380 59,473 — 98,853
2034 27,810 53,740 — 81,550
2035 20,492 51,524 — 72,016
2036 15,699 50,124 — 65,823
2037 12,167 49,866 — 62,033
2038 8,673 53,212 — 61,885
2039 4,168 56,579 — 60,747
Total $ 2,329,356 $ 1,430,182 $ 16,831 $ 3,776,369
Headcount by Function by Geographic Location
The following table summarizes our headcount by function and by geographic location:
Headcount as of December 31,
2024 2023 2022
United States:
General & Administrative 1,040 999 929
Account Manager 424 407 306
Subtotal 1,464 1,406 1,235
Europe:
General & Administrative 896 955 1,030
Account Manager 1,942 1,883 2,062
Subtotal 2,838 2,838 3,092
Other Geographies (1) :
General & Administrative 1,379 1,252 1,150
Account Manager 1,665 1,879 1,456
Subtotal 3,044 3,131 2,606
Total 7,346 7,375 6,933
________________________
(1) Headcount for other geographies includes employees in India and Costa Rica that service accounts originated in the United States.
44
Table of Contents
Supplemental quarterly financial information
Financial highlights
Three Months Ended December 31,
(in thousands, except percentages and earnings per share) 2024 2023 Change
Collections
$ 554,595 $ 458,350 21%
Revenues
$ 265,619 $ 277,387 (4)%
Portfolio purchases (1)
$ 495,144 $ 292,497 69%
Operating expenses
$ 399,809 $ 494,580 (19)%
GAAP net loss (2)
$ (225,307) $ (270,762) NM
GAAP loss per share (2)
$ (9.42) $ (11.40) NM
__________________
(1) Includes U.S. purchases of $295.3 million and $208.5 million, and Europe purchases of $199.8 million and $84.0 million in Q4 2024 and Q4 2023, respectively.
(2) NM - Not meaningful.
Consolidated financial statements of operations
Three Months Ended December 31,
(in thousands)
2024 2023
Revenues
Revenue from receivable portfolios $ 336,666 $ 304,892
Changes in recoveries (95,760) (52,476)
Total debt purchasing revenue 240,906 252,416
Servicing revenue 20,525 19,650
Other revenues 4,188 5,321
Total revenues 265,619 277,387
Operating expenses
Salaries and employee benefits 104,616 96,760
Cost of legal collections 68,989 56,727
General and administrative expenses 52,019 36,809
Other operating expenses 37,786 29,315
Collection agency commissions 8,288 9,074
Depreciation and amortization 8,967 8,969
Goodwill impairment 100,600 238,200
Impairment of assets 18,544 18,726
Total operating expenses 399,809 494,580
Loss from operations
(134,190) (217,193)
Other expense
Interest expense (68,498) (54,501)
Loss on extinguishment of debt (7,832) —
Other income (expense) 541 (2)
Total other expense (75,789) (54,503)
Loss before income taxes
(209,979) (271,696)
(Provision) benefit for income taxes (15,328) 934
Net loss $ (225,307) $ (270,762)
45
Table of Contents
Liquidity and Capital Resources
Liquidity
The following table summarizes our cash flow activities for the periods presented (in thousands) :
Year Ended December 31,
2024 2023 2022
Net cash provided by operating activities $ 156,168 $ 152,991 $ 210,681
Net cash used in investing activities (440,430) (401,941) (130,235)
Net cash provided by (used in) financing activities 317,774 268,300 (107,445)
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 $156.2 million, $153.0 million, and $210.7 million during the years ended December 31, 2024, 2023, and 2022, respectively. Operating cash flows are derived by adjusting net income for non-cash operating items such as depreciation and amortization, changes in recoveries, goodwill impairment, impairment of assets, stock-based compensation charges, deferred income tax, and changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations. During the year ended December 31, 2024, we recorded a goodwill impairment of $100.6 million and an impairment of long-lived assets of $18.5 million. During the year ended December 31, 2023, we recorded a goodwill impairment of $238.2 million and an impairment of intangible assets of $18.7 million. Changes in recoveries increased the operating cash flows by $89.7 million, and $82.5 million during the years ended December 31, 2024, and 2023, respectively. Changes in recoveries decreased the operating cash flows by $93.1 million during the year ended December 31, 2022. Refer to “Note 4: Investment in Receivable Portfolios, Net” in the notes to our consolidated financial statements for discussion relating to changes in recoveries.
Investing Cash Flows
Net cash used in investing activities was $440.4 million, $401.9 million, and $130.2 million during the years ended December 31, 2024, 2023, and 2022, respectively. Cash provided by or used in investing activities is primarily affected by receivable portfolio purchases offset by collection proceeds applied to the principal of our receivable portfolios. Receivable portfolio purchases were $1,336.4 million, $1,060.2 million, and $790.6 million during the years ended December 31, 2024, 2023, and 2022, respectively. Collection proceeds applied to the principal of our receivable portfolios were $859.9 million, $658.1 million, and $709.2 million during the years ended December 31, 2024, 2023, and 2022, respectively. Refer to Purchases and Collections within “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” for discussion relating to purchases and collections.
Financing Cash Flows
Net cash provided by financing activities was $317.8 million, and $268.3 million during the years ended December 31, 2024 and 2023, respectively. Net cash used in financing activities was $107.4 million during the year ended December 31, 2022. 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 $2,031.5 million, $1,196.0 million, and $779.5 million during the years ended December 31, 2024, 2023, and 2022, respectively. Repayments of amounts outstanding under our credit facilities were $1,868.1 million, $989.6 million, and $515.7 million during the years ended December 31, 2024, 2023, and 2022, respectively. During the year ended December 31, 2024, we issued $1.0 billion in senior secured notes (of which $500.0 million matures in 2029 and $500.0 million matures in 2030). We used a portion of the proceeds from the senior secured notes issuance to repay drawings under our Global Senior Facility. Proceeds from the issuance of senior secured notes were $104.2 million during the year ended December 31, 2023. Using drawings from its Global Senior Facility and cash on hand, we fully redeemed the Encore 2025 Notes and the Encore 2026 Notes in the fourth quarter of 2024. The total repayments of senior secured notes were $789.1 million, $39.1 million, and $39.1 million during the years ended December 31, 2024, 2023, and 2022, respectively. Additionally, in connection with the early redemptions of the Encore 2025 Notes and the Encore 2026 Notes, we settled the corresponding 2020 Euro Swaps and the 2023 GBP Swaps on the respective loan redemption date for approximately $40.0 million in cash. During the year ended December 31, 2023, we issued $230.0 million 4.00% convertible senior notes that mature in 2029, and used $212.5 million in cash to repurchase and settle our exchangeable senior notes due 2023. We repaid $221.2 million of convertible senior notes using cash on hand during the year ended December 31, 2022.
46
Table of Contents
Capital Resources
Our primary sources of capital are cash collections from our investment in receivable portfolios, bank borrowings, debt offerings, and equity offerings. Depending on the capital markets, we consider additional financings to fund our operations and any potential acquisitions. From time to time, we may repurchase outstanding debt or equity and/or restructure or refinance debt obligations. Our primary cash requirements include funding the purchase of receivable portfolios, operating expenses, the payment of interest and principal on borrowings, the payment of income taxes, funding any entity acquisitions and share repurchases.
We are in material compliance with all covenants under our financing arrangements. See “Note 6: Borrowings” in the notes to our consolidated financial statements for a further discussion of our debt. Available capacity under our Global Senior Facility was $402.8 million as of December 31, 2024.
In March 2024, we issued $500.0 million in aggregate principal amount of 9.250% Senior Secured Notes due 2029 at an issue price of 100.000% through a private placement offering. Additionally, in May 2024, we issued $500.0 million in aggregate principal amount of 8.500% Senior Secured Notes due 2030 at an issue price of 100.000% through a separate private placement offering.
In October 2024, we fully redeemed the Encore 2025 Notes at par using drawings from our Global Senior Facility and cash on hand. The Global Senior Facility was subsequently upsized by $92.0 million from $1,203.0 million to $1,295.0 million in October 2024. In November, 2024, we fully redeemed the Encore 2026 Senior Secured Notes at par using drawings from our Global Senior Facility and cash on hand.
Our Board of Directors has approved a $300.0 million share repurchase program. Repurchases under this program are expected to be made from cash on hand and/or a drawing from our Global Senior Facility and may be made from time to time, subject to market conditions and other factors, in the open market, through private transactions, block transactions, or other methods as determined by our management and Board of Directors, and in accordance with market conditions, other corporate considerations, and applicable regulatory requirements. The program does not obligate us to acquire any particular amount of common stock, and it may be modified or suspended at our discretion. During the year ended December 31, 2022, we repurchased 1,497,184 shares of our common stock for approximately $86.9 million under the share repurchase program. We did not make any repurchases under the share repurchase program during the years ended December 31, 2023 and 2024. As of December 31, 2024, we had remaining authority to purchase $91.9 million of our common stock. Our practice is to retire the shares repurchased.
Our cash and cash equivalents as of December 31, 2024, consisted of $49.9 million held by U.S.-based entities and $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 sources of cash and liquidity are sufficient to meet our business needs in the United States and do not expect that we will need to repatriate the funds.
Included in cash and cash equivalents is cash that was collected on behalf of, and remains payable to, third-party clients. The balance of cash held for clients was $21.5 million and $16.0 million as of December 31, 2024 and 2023, respectively.
Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, timing of cash collections from our consumers, and other risks detailed in our Risk Factors. However, we believe that we have sufficient liquidity to fund our operations for at least the next twelve months, given our expectation of continued positive cash flows from operations, our cash and cash equivalents, our access to capital markets, and availability under our credit facilities. Our future cash needs will depend on our acquisitions of portfolios and businesses.
47
Table of Contents
Future Contractual Cash Obligations
The following table summarizes our future contractual cash obligations as of December 31, 2024 ( in thousands ):
Payment Due By Period
Contractual Obligations Total Less
Than
1 Year 1 – 3 Years 3 – 5 Years More
Than
5 Years
Principal payments on debt $ 3,708,953 $ 114,097 $ 351,754 $ 2,423,965 $ 819,137
Estimated interest payments (1)
1,036,379 260,775 509,487 249,231 16,886
Finance leases 1,116 858 258 — —
Operating leases 81,239 17,372 30,032 21,948 11,887
Purchase commitments on receivable portfolios
344,116 339,979 4,137 — —
Total contractual cash obligations (2)
$ 5,171,803 $ 733,081 $ 895,668 $ 2,695,144 $ 847,910
________________________
(1) Estimated interest payments are calculated based on outstanding principal amounts, applicable fixed interest rates or currently effective interest rates as of December 31, 2024 for variable rate debt, timing of scheduled payments and the term of the debt obligations.
(2) We had approximately $7.9 million of liabilities and accrued interests related to uncertain tax positions as of December 31, 2024. We are unable to reasonably estimate the timing of the cash settlement with the tax authorities due to uncertainties related to these tax matters and, as a result, these obligations are not included in the table. See “Note 11: Income Taxes” in the notes to our consolidated financial statements for additional information on our uncertain tax positions.
Critical Accounting Estimates
We prepare our financial statements, in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. “Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies” of the notes to the consolidated financial statements describes the significant accounting policies and methods used in the preparation of our consolidated financial statements.
We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from these estimates and such differences may be material. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below. We have reviewed our critical accounting policies and estimates with the audit committee of our board of directors.
Investment in Receivable Portfolios and Related Revenue
Receivable portfolio purchases are aggregated into pools based on similar risk characteristics. Examples of risk characteristics include financial asset type, collateral type, size, interest rate, date of origination, term, and geographic location. Our static pools are typically grouped into credit card, purchased consumer bankruptcy, and mortgage portfolios. We further group these static pools by geographic location. Once a pool is established, the portfolios will remain in the designated pool unless the underlying risk characteristics change. The purchase EIR of a pool will not change over the life of the pool even if expected future cash flows change.
Revenue is recognized for each static pool over the economic life of the pool. We make significant assumptions in determining the economic life of a pool, including the reasonable and supportable economic forecast period based on asset type and geography, which considers the availability of forward-looking scenarios and their respective time horizons. In general, we forecast recoveries over one or two years prior to reverting to historical averages at an estimate-level over the remaining life using various methodologies depending on the asset type and geography. The speed at which forecasts revert varies based on the spread between the forecast period and historical data. In addition, estimated recoveries include a qualitative component, which generally reflects management’s assessment of macroeconomic environment. We continue to evaluate the reasonable economic life of a pool and reversion method on an ongoing basis. Debt purchasing revenue includes two components:
(1) Revenue from receivable portfolios, which is the accretion of the discount on the negative allowance due to the passage of time (generally the portfolio balance multiplied by the EIR) and also includes all revenue from zero basis portfolio (“ZBA”) collections, and
(2) Changes in recoveries, which includes:
48
Table of Contents
(a) Recoveries above or below forecast, which is the difference between (i) actual cash collected/recovered during the current period and (ii) expected cash recoveries for the current period, which generally represents over or under performance for the period; and
(b) Changes in expected future recoveries, which is the present value change of expected future recoveries, where such change generally results from (i) collections “pulled forward from” or “pushed out to” future periods (i.e. amounts either collected early or expected to be collected later) and (ii) magnitude and timing changes to estimates of expected future collections (which can be increases or decreases).
We measure expected future recoveries based on historical experience, current conditions, and reasonable and supportable forecasts. Factors that may change the expected future recoveries may include both internal as well as external factors. Internal factors include operational performance, such as capacity and the productivity of our collection staff. External factors that may have an impact on our collections include macroeconomic conditions, new laws or regulations, and new interpretations of existing laws or regulations.
During the fourth quarter of 2024, we deployed a new U.K. forecasting model that develops expected future recoveries for investment in receivable portfolios at Cabot. The new model update was primarily driven by recent changes in Cabot as it continues to acquire portfolios that have more dynamic characteristics and are better forecasted utilizing a model that processes data inputs at a more granular level. As part of the new model development process, management updated certain model inputs driven by collection experience, operational performance and recent changes in collection strategies. This new forecasting model was applied to all vintages, which resulted in a change in the estimate of expected future recoveries. This change in accounting estimate reduced Cabot’s estimated remaining collections by $361.6 million, which when discounted to present value, resulted in a negative change in expected future recoveries of $75.3 million during the fourth quarter of 2024. This change in estimate had no effect on past periods. We develop a “best estimate” of our expected future recoveries based on reasonable and supportable information at each reporting period. We evaluate our estimates in light of developing information. Future changes to internal and external factors that affect our collection forecasts could have a material adverse effect on our financial condition, results of operations, and cash flows.
See “Note 4: Investment in Receivable Portfolios, Net” to our consolidated financial statements for further discussion of investment in receivable portfolios.
Valuation of Goodwill
Business combinations typically result in the recording of goodwill and other intangible assets. The excess of the purchase price over the fair value assigned to the tangible and identifiable intangible assets, liabilities assumed, and noncontrolling interest in the acquiree is recorded as goodwill.
Goodwill is tested annually for impairment and in interim periods if events or changes in circumstances indicate that the assets may be impaired. We perform our annual goodwill impairment assessment at the reporting unit level as of the first day of the fourth quarter, and any impairment charges resulting from this process are reported in the fourth quarter.
We first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. The qualitative factors include economic environment, business climate, market capitalization, operating performance, competition, and other factors. If, after completing such assessment, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then there is no need to perform any further testing. If we conclude otherwise, or if we proceed directly to perform a quantitative assessment, then we calculate the fair value of the reporting unit and compare the fair value with the carrying value of the reporting unit.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. While we believe we have made reasonable estimates and assumptions to estimate the fair value of our reporting units, if: actual results are not consistent with our current estimates and assumptions; management significantly changes its estimates and assumptions; there is a deterioration in market factors outside of our control, such as general economic conditions in the countries in which we operate, discount rates, income tax rates, foreign currency exchange rates, or inflation; or there is a sustained decline in our stock price and market capitalization, goodwill impairment charges may be recorded in future periods. The goodwill impairment charges have no effect on liquidity or capital resources. However, they are a non-cash charge and could adversely affect our financial results in the period recognized.
49
Table of Contents
As described further in “Note 15: Goodwill and Identifiable Intangible Assets” to our consolidated financial statements, we performed goodwill impairment tests in the fourth quarter of 2024 and recorded a goodwill impairment charge of $100.6 million at our Cabot reporting unit. The carrying value of our Cabot reporting unit was equal to its fair value immediately after the goodwill impairment was recorded. We continue to evaluate and monitor all key factors impacting the goodwill carried at the Cabot reporting unit. Adverse changes in our actual or expected operating results, our market capitalization, business climate, economic factors or other negative events could result in further goodwill impairment at our Cabot reporting unit. The goodwill balance relating to the MCM, Cabot, and LAAP reporting units was $148.9 million, $347.6 million, and $11.3 million, respectively, as of December 31, 2024.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements and the impact of those pronouncements, if any, on our consolidated financial statements is provided in this Annual Report in “Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies” to our consolidated financial statements.
50
Table of Contents