ENCORE CAPITAL GROUP INC. Management’s Discussion and Analysis of Financial Position and Operating Results (Form 10-Q)

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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 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. 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 Mexico. Additionally, we have invested
in Encore Asset Reconstruction Company ("EARC") in India. We previously owned
non-performing loans in Colombia and Peru (sold in August 2021) and Brazil (sold
in April 2020).
To date, operating results from LAAP have not been significant to our total
consolidated operating results. Our long-term growth strategy is focused on
continuing to invest in our core portfolio purchasing and recovery business in
the United States and United Kingdom and strengthening and developing our
business in the rest of Europe.
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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. Through a combination of work-from-home and social
distancing, we remain fully operational in all the markets we serve. As a result
of the COVID-19 pandemic and the resulting containment measures, we have
observed, among other things, a decrease in supply in both US and Europe driven
mainly by a decrease in charge off rates.
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 will become effective on November 30, 2021. Based on our
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 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.
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Cabot (Europe)
In Europe, our purchased under-performing debt portfolios primarily consist of
paying and non-paying consumer loan accounts. We also purchase: (1) portfolios
that are in insolvency status, in particular, individual voluntary arrangements;
and (2) non-performing secured mortgage portfolios and real estate assets
previously securing mortgage portfolios. When we take possession of the
underlying real estate assets or purchase real estate assets, we refer to those
as real estate-owned assets, or REO assets.
We purchase paying and non-paying receivable portfolios using a proprietary
pricing model that utilizes account-level statistical and behavioral data. This
model allows us to value portfolios accurately and quantify portfolio
performance in order to maximize future collections. As a result, we have been
able to realize significant returns from the assets we have acquired. We
maintain strong relationships with many of the largest financial services
providers in the United Kingdom and continue to expand in the United Kingdom and
the rest of Europe with our acquisitions of portfolios.
Purchases and Collections
Portfolio Pricing, Supply and Demand
MCM (United States)
Issuers have continued to sell predominantly fresh portfolios. Fresh portfolios
are portfolios that are generally sold within six months of the consumer's
account being charged-off by the financial institution. Pricing in the third
quarter remained in line with 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 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 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 the future. Additionally, financial institutions
continue to experience both market and regulatory pressure to dispose of
non-performing loans, which should continue to provide debt purchasing
opportunities 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 decreased portfolio sales during 2020 in order to focus
on customers' needs. While we have seen a resumption 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 more stable debt sales strategy. In
general, supply remains below pre-pandemic levels while portfolio pricing has
become more competitive across our European footprint.


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Purchases by Geographic Location
The following table summarizes the geographic locations of receivable portfolios
purchased during the periods presented (in thousands):
                                               Three Months Ended            Nine Months Ended
                                                 September 30,                 September 30,
                                              2021           2020           2021           2020
MCM (United States)                        $ 102,339      $ 141,066      $ 284,230      $ 451,141
Cabot (Europe)                                65,849         29,065        196,864         81,042

Total purchases of debt portfolios $ 168,188 $ 170,131 $ 481,094 $ 532,183


During the three months ended September 30, 2021, we invested $168.2 million to
acquire receivable portfolios, with face values aggregating $1.4 billion, for an
average purchase price of 12.0% of face value. The amount invested in receivable
portfolios decreased $1.9 million, or 1.1%, compared with the $170.1 million
invested during the three months ended September 30, 2020, to acquire receivable
portfolios with face values aggregating $1.8 billion, for an average purchase
price of 9.5% of face value.
During the nine months ended September 30, 2021, we invested $481.1 million to
acquire receivable portfolios, with face values aggregating $3.9 billion, for an
average purchase price of 12.4% of face value. The amount invested in receivable
portfolios decreased $51.1 million, or 9.6%, compared with the $532.2 million
invested during the nine months ended September 30, 2020, to acquire receivable
portfolios with face values aggregating $4.8 billion, for an average purchase
price of 11.1% of face value.
In the United States, purchases of receivable portfolios decreased during the
three and nine months ended September 30, 2021 as compared to the corresponding
periods in the prior year. The majority of our purchases 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. The
decrease in purchases in the U.S. is a result of a decrease in supply, which we
believe is temporary.
In Europe, purchases of receivable portfolios increased during the three and
nine months ended September 30, 2021 as compared to the corresponding periods in
the prior year. The increases were primarily the result of a relatively limited
supply of portfolios and a continuation of our selective purchasing process in
conjunction with a plan to reduce European debt leverage during the three and
nine months ended September 30, 2020. The increases were also attributable to
the favorable impact from foreign currency translation, primarily by the
weakening of the U.S. dollar against the British Pound.
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 September 30, 2021 and 2020, we invested $8.1
million and $0.2 million in REO assets, respectively. During the nine months
ended September 30, 2021 and 2020, we invested $11.7 million and $1.5 million in
REO assets, respectively.
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Collections from Purchased Receivables by Channel and Geographic Location
We utilize three channels for the collection of our purchased receivables: call
center and digital collections; legal collections; and collection agencies. The
call center and digital collections channel consists of collections that result
from our call centers, direct mail program and online collections. The legal
collections channel consists of collections that result from our internal legal
channel or from our network of retained law firms. The collection agencies
channel consists of collections by third parties to whom we pay a fee or
commission. We utilize this channel to supplement capacity in our internal call
centers, to service accounts in regions where we do not have collections
operations or for accounts purchased where we maintain the collection agency
servicing relationship. The following table summarizes the total collections by
collection channel and geographic area during the periods presented (in
thousands):
                                                      Three Months Ended                       Nine Months Ended
                                                         September 30,                           September 30,
                                                    2021               2020                2021                 2020
MCM (United States):
Call center and digital collections             $ 234,923          $ 246,689          $   762,487          $   709,780
Legal collections                                 170,538            139,473              510,285              431,096
Collection agencies                                 1,121              4,699                6,833               10,766
Subtotal                                          406,582            390,861            1,279,605            1,151,642
Cabot (Europe):
Call center and digital collections                71,192             65,182              226,873              182,206
Legal collections                                  45,144             40,171              137,926              115,107
Collection agencies                                39,053             36,120              121,545              104,634
Subtotal                                          155,389            141,473              486,344              401,947
Other geographies:

Collection agencies                                 4,719              7,414               19,629               21,653
Subtotal                                            4,719              7,414               19,629               21,653

Total collections of purchased receivables $ 566,690 $ 539,748 $ 1,785,578 $ 1,575,242


Gross collections from purchased receivables increased by $26.9 million, or
5.0%, to $566.7 million during the three months ended September 30, 2021, from
$539.7 million during the three months ended September 30, 2020. Gross
collections from purchased receivables increased by $210.3 million, or 13.4%, to
$1,785.6 million during the nine months ended September 30, 2021, from $1,575.2
million during the nine months ended September 30, 2020.
The increase in collections from purchased receivables in the United States was
primarily driven by changes in consumer behavior during the COVID-19 pandemic,
an increase in legal channel collections and our continued effort in improving
liquidation. We are frequently 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 a significant
increase in collections and improved our operating efficiency.
The increase in collections from purchased receivables in Europe was primarily
due to reduced collections in the prior year resulting from the impacts of the
COVID-19 pandemic and the favorable impact from foreign currency translation,
primarily by the weakening of the U.S. dollar against the British Pound.
The COVID-19 pandemic and the resulting containment measures, including impacts
to the legal collections process, negatively affected legal collections during
the three and nine months ended September 30, 2020. We are closely monitoring
the impacts of the COVID-19 pandemic on collections and cost-to-collect.





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Results of Operations
Results of operations, in dollars and as a percentage of total revenues,
adjusted by net allowances, were as follows (in thousands, except percentages):
                                                                            

Three months ended September 30,

                                                                        2021                                     2020

Income

Revenue from receivable portfolios                      $       316,225               76.6  %       $ 342,489               84.8  %
Changes in recoveries                                            65,913               16.0  %          30,451                7.6  %
Total debt purchasing revenue                                   382,138               92.6  %         372,940               92.4  %
Servicing revenue                                                29,321                7.1  %          29,787                7.4  %
Other revenues                                                    1,165                0.3  %             949                0.2  %
Total revenues                                                  412,624              100.0  %         403,676              100.0  %

Operating expenses
Salaries and employee benefits                                   94,662               22.9  %          95,979               23.8  %
Cost of legal collections                                        64,170               15.6  %          60,383               15.0  %
General and administrative expenses                              35,819                8.7  %          53,459               13.2  %
Other operating expenses                                         25,226                6.1  %          28,088                7.0  %
Collection agency commissions                                    11,964                2.9  %          12,703                3.1  %
Depreciation and amortization                                    14,136                3.4  %          10,609                2.6  %

Total operating expenses                                        245,977               59.6  %         261,221               64.7  %
Income from operations                                          166,647               40.4  %         142,455               35.3  %
Other expense
Interest expense                                                (40,874)              (9.9) %         (52,974)             (13.1) %
Loss on extinguishment of debt                                        -                  -  %         (14,988)              (3.7) %
Other (expense) income                                          (17,504)              (4.2) %             361                0.1  %
Total other expense                                             (58,378)             (14.1) %         (67,601)             (16.7) %
Income before income taxes                                      108,269               26.3  %          74,854               18.6  %
Provision for income taxes                                      (24,703)              (6.0) %         (19,747)              (4.9) %
Net income                                                       83,566               20.3  %          55,107               13.7  %
Net income attributable to noncontrolling interest                    -                  -  %            (457)              (0.1) %
Net income attributable to Encore Capital Group, Inc.
stockholders                                            $        83,566               20.3  %       $  54,650               13.6  %


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Contents

Nine months ended September 30,

                                                                        2021                                     2020

Income

Revenue from receivable portfolios                      $      982,393               78.1  %       $ 1,035,141               92.5  %
Changes in recoveries                                          176,628               14.1  %            (2,203)              (0.2) %
Total debt purchasing revenue                                1,159,021               92.2  %         1,032,938               92.3  %
Servicing revenue                                               93,901                7.5  %            82,417                7.4  %
Other revenues                                                   4,274                0.3  %             3,435                0.3  %
Total revenues                                               1,257,196              100.0  %         1,118,790              100.0  %

Operating expenses
Salaries and employee benefits                                 288,892               23.0  %           279,944               25.0  %
Cost of legal collections                                      198,212               15.8  %           164,018               14.7  %
General and administrative expenses                            102,790                8.1  %           113,954               10.2  %
Other operating expenses                                        81,895                6.5  %            83,527                7.5  %
Collection agency commissions                                   38,465                3.1  %            36,562                3.3  %
Depreciation and amortization                                   37,694                3.0  %            31,436                2.8  %

Total operating expenses                                       747,948               59.5  %           709,441               63.5  %
Income from operations                                         509,248               40.5  %           409,349               36.5  %
Other expense
Interest expense                                              (131,559)             (10.5) %          (157,963)             (14.1) %
Loss on extinguishment of debt                                  (9,300)              (0.7) %           (14,988)              (1.4) %
Other expense                                                  (16,993)              (1.4) %            (1,211)              (0.1) %
Total other expense                                           (157,852)             (12.6) %          (174,162)             (15.6) %
Income before income taxes                                     351,396               27.9  %           235,187               20.9  %
Provision for income taxes                                     (76,278)              (6.1) %           (59,875)              (5.4) %
Net income                                                     275,118               21.8  %           175,312               15.5  %
Net income attributable to noncontrolling interest                (419)               0.0  %              (784)              (0.1) %
Net income attributable to Encore Capital Group, Inc.
stockholders                                            $      274,699               21.8  %       $   174,528               15.4  %



Comparison of Results of Operations
Revenues
Our revenues primarily include revenue recognized from engaging in debt
purchasing and recovery activities, our debt purchasing revenue. 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.
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
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(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 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 may
include gains recognized on transfers of financial assets.
The following table summarizes revenues for the periods presented (in thousands,
except percentages):
                                                                   Three Months Ended September 30,
                                                  2021                  2020             $ Change              % Change
Revenue recognized from portfolio basis    $    304,341             $ 329,106          $ (24,765)                    (7.5) %
ZBA revenue                                      11,884                13,383             (1,499)                   (11.2) %
Revenue from receivable portfolios              316,225               342,489            (26,264)                    (7.7) %

Recoveries above forecast                        77,064                78,268             (1,204)                    (1.5) %
Changes in expected future recoveries           (11,151)              (47,817)            36,666                    (76.7) %
Changes in recoveries                            65,913                30,451             35,462                    116.5  %
Debt purchasing revenue                         382,138               372,940              9,198                      2.5  %

Servicing revenue                                29,321                29,787               (466)                    (1.6) %
Other revenues                                    1,165                   949                216                     22.8  %
Total revenues                             $    412,624             $ 403,676          $   8,948                      2.2  %



                                                        Nine Months Ended September 30,
                                              2021             2020          $ Change       % Change
Revenue recognized from portfolio basis   $   944,012      $   991,614      $ (47,602)         (4.8) %
ZBA revenue                                    38,381           43,527         (5,146)        (11.8) %
Revenue from receivable portfolios            982,393        1,035,141      

(52,748) (5.1)%

Recoveries above forecast                     277,861          197,155         80,706          40.9  %
Changes in expected future recoveries        (101,233)        (199,358)        98,125         (49.2) %
Changes in recoveries                         176,628           (2,203)       178,831       (8117.6) %
Debt purchasing revenue                     1,159,021        1,032,938        126,083          12.2  %

Servicing revenue                              93,901           82,417         11,484          13.9  %
Other revenues                                  4,274            3,435            839          24.4  %
Total revenues                            $ 1,257,196      $ 1,118,790      $ 138,406          12.4  %


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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 favorably impacted by foreign currency translation,
primarily by the weakening of the U.S. dollar against the British Pound by 6.3%
during the three months ended September 30, 2021 compared to the three months
ended September 30, 2020 and by 8.3% for the nine months ended September 30,
2021 compared to the nine months ended September 30, 2020.
The decreases in revenue recognized from portfolio basis during the three and
nine months ended September 30, 2021 as compared to the three and nine months
ended September 30, 2020 were primarily due to lower portfolio basis driven by
the negative changes in expected future period recoveries and a lower volume of
purchases in recent quarters.
As discussed above, ZBA revenue represents collections from our legacy ZBA
pools. We expect our ZBA revenue to continue to decline as we collect on these
legacy pools.
Recoveries above or below forecast represent over and under-performance in the
reporting period. Collections during the three and nine months ended
September 30, 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.
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, as well as related actions taken by governments.
When reassessing the future forecasts of expected lifetime recoveries during the
three months ended September 30, 2021, management considered historical and
current collection performance, and believes that for certain static pools
collections over-performance resulted in increased total expected recoveries.
Although management believes that the relevant macroeconomic conditions have
improved and therefore no longer materially impact our collections performance,
uncertainty still remains in the geographies in which we operate. As a result of
a combination of the above, we have updated our forecast, resulting in a net
reduction of total estimated remaining collections which in turn, when
discounted to present value, resulted in a negative change in expected future
period recoveries of approximately $11.2 million and $101.2 million during the
three and nine months ended September 30, 2021, respectively. During the three
and nine months ended September 30, 2020, we recorded approximately $47.8
million and $199.4 million, respectively, in negative change in expected future
period recoveries. The circumstances around this pandemic continue to rapidly
evolve, 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 and update our assumptions accordingly.
                                       33
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The following tables summarize collections from purchased receivables, revenue
from receivable portfolios, end of period receivable balance and other related
supplemental data, by year of purchase (in thousands, except percentages):
                                                Three Months Ended September 30, 2021                              As of September 30, 2021
                                                              Revenue from                                Investment in
                                                               Receivable            Changes in             Receivable
                                       Collections             Portfolios            Recoveries             Portfolios               Monthly EIR
United States:
ZBA                                 $       11,247          $      11,247          $          -          $           -                            -  %
2011                                         6,343                  4,442                 1,815                  1,604                         88.6  %
2012                                         6,371                  4,371                 1,779                  3,320                         42.0  %
2013                                        14,535                 11,842                 2,377                  9,658                         40.5  %
2014                                         8,810                  5,311                 1,365                 25,039                          6.7  %
2015                                         9,872                  4,829                 2,524                 39,618                          3.9  %
2016                                        20,762                  9,188                 7,177                 73,942                          4.1  %
2017                                        33,102                 16,798                 8,297                101,034                          5.3  %
2018                                        54,240                 23,335                 9,181                188,650                          3.8  %
2019                                        95,390                 40,104                22,558                331,071                          3.8  %
2020                                       107,901                 46,988                33,139                403,776                          3.7  %
2021                                        38,009                 26,023                   757                264,786                          4.0  %
Subtotal                                   406,582                204,478                90,969              1,442,498                          4.4  %
Europe:
ZBA                                             22                     22                     -                      -                            -  %
2013                                        23,131                 19,265                (4,703)               188,032                          3.2  %
2014                                        20,522                 15,195                (3,087)               158,709                          3.0  %
2015                                        13,901                  9,775                (2,984)               126,822                          2.4  %
2016(1)                                     11,798                 10,087                (7,791)               113,336                          2.8  %
2017                                        19,984                 13,325                (6,372)               222,894                          1.9  %
2018                                        18,558                 13,090                (6,856)               264,678                          1.6  %
2019                                        20,231                 12,403                (1,305)               213,600                          1.8  %
2020                                        14,795                  8,432                 5,889                120,945                          2.3  %
2021                                        12,447                  8,512                   796                186,080                          1.9  %
Subtotal                                   155,389                110,106               (26,413)             1,595,096                          2.2  %
Other geographies:(2)
ZBA                                            615                    615                     -                      -                            -  %
2013                                             -                      -                   138                      -                            -  %
2014                                           869                    190                   414                 38,441                            -  %
2015                                           741                    220                   322                  2,265                            -  %
2016                                           352                    110                   457                      -                            -  %
2017                                         1,222                    294                     -                  4,971                            -  %
2018                                           885                    201                    15                      -                            -  %
2019                                            35                     11                    11                      -                            -  %

Subtotal                                     4,719                  1,641                 1,357                 45,677                            -  %
Total                               $      566,690          $     316,225          $     65,913          $   3,083,271                          3.3  %


_______________________
(1)Portfolio balance includes non-accrual pool groups. The EIR presented is only
for pool groups that accrete portfolio revenue.
(2)All portfolios are on non-accrual basis subsequent to the sale of our
investments in Colombia and Peru in August 2021.
                                       34
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                                             Three Months Ended September 30, 2020                              As of September 30, 2020
                                                           Revenue from                                Investment in
                                                            Receivable            Changes in             Receivable
                                    Collections             Portfolios            Recoveries             Portfolios               Monthly EIR
United States:
ZBA                              $       12,145          $      12,148          $          -          $           -                            -  %
2011                                      6,026                  5,275                   673                  2,027                         88.6  %
2012                                      6,245                  5,894                   196                  4,552                         42.0  %
2013                                     15,028                 14,050                   718                 11,361                         40.5  %
2014                                     11,368                  8,334                (1,443)                37,728                          6.7  %
2015                                     15,362                  7,465                 1,585                 59,920                          3.9  %
2016                                     27,343                 13,517                 2,270                109,636                          3.9  %
2017                                     45,696                 24,441                 9,872                149,478                          5.2  %
2018                                     73,473                 36,907                 2,871                297,062                          3.8  %
2019                                    108,410                 64,583                (9,618)               522,303                          3.8  %
2020                                     69,765                 37,347                18,752                422,572                          3.6  %
Subtotal                                390,861                229,961                25,876              1,616,639                          4.3  %
Europe:
ZBA                                          42                     41                     -                      -                            -  %
2013                                     24,113                 21,588                   671                221,977                          3.2  %
2014                                     21,414                 17,301                 1,189                191,851                          3.1  %
2015                                     13,595                 10,745                   476                147,919                          2.4  %
2016(1)                                  13,531                 10,748                 1,629                129,015                          2.6  %
2017                                     21,729                 14,891                  (689)               259,394                          1.8  %
2018                                     19,341                 14,707                (1,577)               309,543                          1.6  %
2019                                     20,682                 13,569                (1,557)               239,346                          1.8  %
2020                                      7,026                  4,713                 3,172                 82,980                          2.4  %
Subtotal                                141,473                108,303                 3,314              1,582,025                          2.3  %
Other geographies:
ZBA                                       1,182                  1,194                     -                      -                            -  %
2014(1)                                     922                    399                   241                 45,043                        101.7  %
2015(1)                                   1,054                    597                   305                  3,395                         96.7  %
2016                                        608                    390                   109                  1,626                          7.1  %
2017(1)                                   1,993                    925                   336                 10,933                          6.2  %
2018                                      1,587                    686                   261                  5,922                          3.7  %
2019                                         68                     34                     9                    409                          4.6  %

Subtotal                                  7,414                  4,225                 1,261                 67,328                          7.9  %
Total                            $      539,748          $     342,489          $     30,451          $   3,265,992                          3.4  %


_______________________

(1) The portfolio balance includes unaccounted for groups. The EIR shown is only for pool groups that accumulate portfolio income.

                                       35
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                                                 Nine Months Ended September 30, 2021                               As of September 30, 2021
                                                               Revenue from                                Investment in
                                                                Receivable            Changes in             Receivable
                                       Collections              Portfolios            Recoveries             Portfolios               Monthly EIR
United States:
ZBA                                 $        35,418          $      35,418          $          -          $           -                            -  %
2011                                         18,660                 13,554                 5,014                  1,604                         88.6  %
2012                                         19,425                 13,930                 4,786                  3,320                         42.0  %
2013                                         44,569                 37,252                 7,269                  9,658                         40.5  %
2014                                         27,714                 17,896                   936                 25,039                          6.7  %
2015                                         34,788                 16,393                 5,237                 39,618                          3.9  %
2016                                         71,702                 30,703                17,073                 73,942                          4.1  %
2017                                        117,087                 57,023                22,940                101,034                          5.3  %
2018                                        184,002                 79,230                27,475                188,650                          3.8  %
2019                                        317,708                137,499                42,570                331,071                          3.8  %
2020                                        335,862                151,098                93,395                403,776                          3.7  %
2021                                         72,670                 44,963                 9,203                264,786                          4.0  %
Subtotal                                  1,279,605                634,959               235,898              1,442,498                          4.4  %
Europe:
ZBA                                              82                     82                     -                      -                            -  %
2013                                         72,423                 62,806               (30,524)               188,032                          3.2  %
2014                                         65,210                 49,571               (20,137)               158,709                          3.0  %
2015                                         44,723                 31,013                (9,323)               126,822                          2.4  %
2016(1)                                      39,204                 31,081                (5,594)               113,336                          2.8  %
2017                                         65,295                 41,981                (9,409)               222,894                          1.9  %
2018                                         61,584                 41,292               (13,968)               264,678                          1.6  %
2019                                         67,610                 38,863                 3,062                213,600                          1.8  %
2020                                         46,174                 25,853                18,272                120,945                          2.3  %
2021                                         24,039                 16,350                 4,653                186,080                          1.9  %
Subtotal                                    486,344                338,892               (62,968)             1,595,096                          2.2  %
Other geographies:(2)
ZBA                                           2,881                  2,881                     -                      -                            -  %
2013                                              -                      -                   138                      -                            -  %
2014                                          2,896                    933                   678                 38,441                            -  %
2015                                          3,058                  1,196                 1,009                  2,265                            -  %
2016                                          1,533                    655                   731                      -                            -  %
2017                                          5,211                  1,656                   535                  4,971                            -  %
2018                                          3,905                  1,161                   589                      -                            -  %
2019                                            145                     60                    18                      -                            -  %

Subtotal                                     19,629                  8,542                 3,698                 45,677                            -  %
Total                               $     1,785,578          $     982,393          $    176,628          $   3,083,271                          3.3  %


_______________________
(1)Portfolio balance includes non-accrual pool groups. The EIR presented is only
for pool groups that accrete portfolio revenue.
(2)All portfolios are on non-accrual basis subsequent to the sale of our
investments in Colombia and Peru in August 2021.
                                       36
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                                                 Nine Months Ended September 30, 2020                                 As of September 30, 2020
                                                                Revenue from                                 Investment in
                                                                 Receivable             Changes in             Receivable
                                      Collections                Portfolios             Recoveries             Portfolios               Monthly EIR
United States:
ZBA                              $       40,202               $       40,215          $          -          $           -                            -  %
2011                                     19,494                       17,398                 1,444                  2,027                         88.6  %
2012                                     21,377                       19,518                   338                  4,552                         42.0  %
2013                                     48,854                       46,166                  (986)                11,361                         40.5  %
2014                                     37,795                       27,302                (3,056)                37,728                          6.7  %
2015                                     51,856                       25,068                 2,821                 59,920                          3.9  %
2016                                     93,103                       45,161                 4,786                109,636                          3.9  %
2017                                    154,198                       82,417                17,595                149,478                          5.2  %
2018                                    243,439                      124,467                (4,204)               297,062                          3.8  %
2019                                    313,152                      205,004                (2,749)               522,303                          3.8  %
2020                                    128,172                       69,143                32,567                422,572                          3.6  %
Subtotal                              1,151,642                      701,859                48,556              1,616,639                          4.3  %
Europe:
ZBA                                         142                          141                     -                      -                            -  %
2013                                     69,322                       64,334                (6,317)               221,977                          3.2  %
2014                                     62,882                       51,799                (1,179)               191,851                          3.1  %
2015                                     40,451                       32,138                 1,416                147,919                          2.4  %
2016(1)                                  37,144                       32,096                (7,235)               129,015                          2.6  %
2017                                     64,225                       45,071               (10,603)               259,394                          1.8  %
2018                                     59,452                       44,562               (24,395)               309,543                          1.6  %
2019                                     57,277                       41,017                (8,139)               239,346                          1.8  %
2020                                     11,052                        8,724                 4,746                 82,980                          2.4  %
Subtotal                                401,947                      319,882               (51,706)             1,582,025                          2.3  %
Other geographies:
ZBA                                       3,162                        3,171                     -                      -                            -  %
2014(1)                                   3,445                        1,262                   270                 45,043                        101.7  %
2015(1)                                   3,559                        2,027                   525                  3,395                         96.7  %
2016                                      2,025                        1,474                  (100)                 1,626                          7.1  %
2017(1)                                   5,082                        3,008                    52                 10,933                          6.2  %
2018                                      4,201                        2,348                   205                  5,922                          3.7  %
2019                                        179                          110                    (5)                   409                          4.6  %
Subtotal                                 21,653                       13,400                   947                 67,328                          3.4  %
Total                            $    1,575,242               $    1,035,141          $     (2,203)         $   3,265,992                          3.4  %

_______________________

(1)Portfolio balance includes non-accrual pool groups. The EIR presented is only
for pool groups that accrete portfolio revenue.
Servicing revenues during the three months ended September 30, 2021 was
relatively consistent as compared to servicing revenues during the three months
ended September 30, 2020. Servicing revenues increased during the nine months
ended September 30, 2021 as compared to the same period in the prior year, the
increase was primarily attributable to increased fee-based income driven by
growth in BPO operations in Cabot and the favorable impact of foreign currency
translation, which was primarily the result of the weakening of the U.S. dollar
against the British Pound.
Other revenues increased during the three and nine months ended September 30,
2021 as compared to the three and nine months ended September 30, 2020,
primarily driven by the increased sale of real estate assets and the favorable
impact of foreign currency translation, which was primarily the result of the
weakening of the U.S. dollar against the British Pound.
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  Table of Contents
Operating Expenses
The following table summarizes operating expenses for the periods presented (in
thousands, except percentages):
                                                      Three Months Ended 

September 30,

                                              2021              2020         $ Change       % Change
Salaries and employee benefits         $     94,662          $  95,979      $  (1,317)        (1.4) %
Cost of legal collections                    64,170             60,383          3,787          6.3  %
General and administrative expenses          35,819             53,459        (17,640)       (33.0) %
Other operating expenses                     25,226             28,088         (2,862)       (10.2) %
Collection agency commissions                11,964             12,703           (739)        (5.8) %
Depreciation and amortization                14,136             10,609          3,527         33.2  %
Total operating expenses               $    245,977          $ 261,221      $ (15,244)        (5.8) %


                                                      Nine Months Ended September 30,
                                              2021              2020         $ Change      % Change
Salaries and employee benefits         $    288,892          $ 279,944      $  8,948          3.2  %
Cost of legal collections                   198,212            164,018        34,194         20.8  %
General and administrative expenses         102,790            113,954       (11,164)        (9.8) %
Other operating expenses                     81,895             83,527        (1,632)        (2.0) %
Collection agency commissions                38,465             36,562         1,903          5.2  %
Depreciation and amortization                37,694             31,436         6,258         19.9  %
Total operating expenses               $    747,948          $ 709,441      $ 38,507          5.4  %


Our operating results are impacted by foreign currency translation, which
represents the effect of translating operating results where the functional
currency is different than our U.S. dollar reporting currency. The strengthening
of the U.S. dollar relative to other foreign currencies has a favorable impact
on our international operating expenses, and the weakening of the U.S. dollar
relative to other foreign currencies has an unfavorable impact on our
international operating expenses. Our operating expenses were unfavorably
impacted by foreign currency translation, primarily by the weakening of the U.S.
dollar against the British Pound by approximately 6.3% for the three months
ended September 30, 2021 as compared to the three months ended September 30,
2020, and by 8.3% for the nine months ended September 30, 2021 compared to the
nine months ended September 30, 2020.
Operating expenses are explained in more detail as follows:
Salaries and Employee Benefits
The decrease in salaries and employee benefits during the three months ended
September 30, 2021 as compared to the three months ended September 30, 2020 was
primarily due to the following reasons:
•Slight decrease of headcount in the US and International locations;
•The decrease was partially offset by the unfavorable impact of foreign currency
translation, primarily by the weakening of the U.S. dollar against the British
Pound.
The increase in salaries and employee benefits during the nine months ended
September 30, 2021 as compared to the nine months ended September 30, 2020 were
primarily due to the following reasons:
•Increased salaries and benefits in our fee-based business in Cabot driven by
growth in BPO operations;
•The unfavorable impact of foreign currency translation, primarily by the
weakening of the U.S. dollar against the British Pound.

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Cost of Legal Collections
Cost of legal collections primarily includes contingent fees paid to our
external network of attorneys and the cost of litigation. We pursue legal
collections using a network of attorneys that specialize in collection matters
and through our internal legal channel. Under the agreements with our contracted
attorneys, we advance certain out-of-pocket court costs. Cost of legal
collections does not include internal legal channel employee costs, which are
included in salaries and employee benefits in our consolidated statements of
operations.
The following table summarizes our cost of legal collections during the periods
presented (in thousands, except percentages):
                                                    Three Months Ended September 30,
                                             2021                2020        $ Change      % Change
Court costs                         $     37,970              $ 38,500      $   (530)        (1.4) %
Legal collection fees                     26,200                21,883         4,317         19.7  %
Total cost of legal collections     $     64,170              $ 60,383      $  3,787          6.3  %


                                                   Nine Months Ended September 30,
                                           2021              2020         $ Change      % Change
Court costs                         $    119,366          $  96,202      $ 23,164         24.1  %
Legal collection fees                     78,846             67,816       

11,030 16.3% Total cost of legal collections $ 198,212 $ 164,018 $ 34,194 20.8%


Cost of legal collections 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 decreases in general and administrative expense during the three and nine
months ended September 30, 2021 compared to the three and nine months ended
September 30, 2020 were primarily due to the following reasons:
•A charge of $15.0 million relating to our settlement with the CFPB recognized
in the three and nine months ended September 30, 2020;
•Certain third-party costs of approximately $6.9 million incurred relating to
various financing transactions completed in September 2020;
•The unfavorable impact of foreign currency translation, primarily by the
weakening of the U.S. dollar against the British Pound;
•The decreases were partially offset by increased information technology related
expense.
Other Operating Expenses
Other operating expenses decreased during the three and nine months ended
September 30, 2021 as compared to the three and nine months ended September 30,
2020, primarily due to reduced expenditures for temporary services and direct
collection expenses. The decreases were partially offset by the unfavorable
impact of foreign currency translation, primarily by the weakening of the U.S.
dollar against the British 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. 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.
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Depreciation and Amortization
The increases in depreciation and amortization expense during the three and nine
months ended September 30, 2021 as compared to the three and nine months ended
September 30, 2020 were primarily due the write-off of certain computer software
and equipment and the unfavorable impact of foreign currency translation,
primarily by the weakening of the U.S. dollar against the British Pound.
Interest Expense
The following tables summarize our interest expense (in thousands, except
percentages):
                                                     Three Months Ended September 30,
                                             2021               2020        $ Change       % Change
Stated interest on debt obligations   $    36,600            $ 44,484      $  (7,884)       (17.7) %
Amortization of debt issuance costs         3,917               6,000         (2,083)       (34.7) %
Amortization of debt discount                 357               2,490         (2,133)       (85.7) %
Total interest expense                $    40,874            $ 52,974      $ (12,100)       (22.8) %



                                                    Nine Months Ended September 30,
                                            2021             2020         $ Change       % Change
Stated interest on debt obligations   $   117,881         $ 137,366      $ (19,485)       (14.2) %
Amortization of debt issuance costs        12,469            11,795            674          5.7  %
Amortization of debt discount               1,209             8,802         (7,593)       (86.3) %
Total interest expense                $   131,559         $ 157,963      $ (26,404)       (16.7) %


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 2023 and fully redeemed our Cabot floating rate notes due 2024. In
June 2021, we completed an offering of senior secured notes due 2028 and fully
redeemed the remaining outstanding portion of our Cabot senior secured notes due
2023. These refinancing transactions successfully reduced the interest rates on
our outstanding borrowings.
The decreases in interest expense during the three and nine months ended
September 30, 2021 compared to the three and nine months ended September 30,
2020 were primarily due to the following reasons:
•Lower 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 weakening of the U.S. dollar against the British Pound and
increased amortization of loan fees and other loan costs as a result of higher
capitalized debt issuance costs.
Loss on Extinguishment of Debt
During the nine months ended September 30, 2021, we recorded $9.3 million of
loss on extinguishment of debt in connection with the redemption of our Cabot
senior secured notes due 2023. During the three and nine months ended September
30, 2020, we recorded $15.0 million of loss on extinguishment of debt in
connection with various financing transactions. Refer to "Note 7: Borrowings" in
the notes to our consolidated financial statements for details of our financing
activities.
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Other (Expense) Income
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 $17.5 million and
other income was $0.4 million during the three months ended September 30, 2021
and 2020, respectively. Other expense was $17.0 million during the nine months
ended September 30, 2021 and other expense was $1.2 million during the nine
months ended September 30, 2020.
Other expense recognized during the three and nine months ended September 30,
2021 primarily included the loss on the sale of our investment in Colombia and
Peru of $17.4 million. Other expense recognized during the nine months ended
September 30, 2020 primarily included a loss of $4.8 million as a result of the
divestiture of our investment in Brazil. This loss was partially offset by other
income from fair value changes for currency exchange forward contracts which
were not designated as hedge instruments for accounting purposes.
Provision for Income Taxes
Provision for income taxes and effective tax rate are as follows for the periods
presented ($ in thousands):
                                 Three Months Ended            Nine Months Ended
                                   September 30,                 September 30,
                                2021           2020           2021           2020
Provision for income taxes   $ 24,703       $ 19,747       $ 76,278       $ 59,875
Effective tax rate               22.8  %        26.4  %        21.7  %        25.5  %


For the three and nine months ended September 30, 2021, the difference between
our effective tax rate and the federal statutory rate was primarily due to the
proportion of income earned in higher tax rate jurisdictions compared to lower
tax rate jurisdictions. In 2020, the difference between our effective tax rate
and the federal statutory rate was primarily due to a change in valuation
allowance recognized in the period under the discrete method. We utilized the
discrete method for recording income taxes during 2020 due to uncertainty in
estimating annual pre-tax earnings primarily due to the COVID-19 pandemic. We
returned to using the estimated annual effective tax rate beginning January 1,
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, 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.
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Adjusted EBITDA. Management utilizes adjusted EBITDA (defined as net income
before interest income and expense, taxes, depreciation and amortization,
stock-based compensation expenses, acquisition, integration and restructuring
related expenses, and other charges or gains that are not indicative of ongoing
operations), in the evaluation of our operating performance. Adjusted EBITDA for
the periods presented is as follows (in thousands):
                                                        Three Months Ended                     Nine Months Ended
                                                           September 30,                         September 30,
                                                      2021               2020               2021               2020
GAAP net income, as reported                      $  83,566          $  55,107          $ 275,118          $ 175,312
Adjustments:
Interest expense                                     40,874             52,974            131,559            157,963
Interest income                                        (270)              (394)            (1,170)            (1,953)
Provision for income taxes                           24,703             19,747             76,278             59,875
Depreciation and amortization                        14,136             10,609             37,694             31,436
CFPB settlement fees(1)                                   -             15,009                  -             15,009
Stock-based compensation expense                      3,847              3,884             12,903             13,189
Acquisition, integration and restructuring
related expenses(2)                                  17,950                (23)            17,950              4,940
Loss on extinguishment of debt                            -             14,988              9,300             14,988

Adjusted EBITDA                                   $ 184,806          $ 

171,901 $ 559,632 $ 470,759
Receipts applied to the principal balance (3) $ 188,181 $ 172,406 $ 641,765 $ 547,902

________________________

(1)Amount represents a charge resulting from the Stipulated Judgment with the
CFPB. We have adjusted for this amount because we believe it is not indicative
of ongoing operations; therefore, adjusting for it enhances comparability to
prior periods, anticipated future periods, and our competitors' results.
(2)Amount represents acquisition, integration and restructuring related
expenses, including the loss recognized on the sale of our investment in
Colombia and Peru of $17.4 million during the three and nine months ended
September 30, 2021 and the loss on sale of our investment in Brazil of $4.8
million during the nine months ended September 30, 2020. 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)Collections applied to principal balance is calculated in the table below.
For consistency with our debt covenant reporting, for periods subsequent to June
30, 2020, the collections applied to principal balance also includes proceeds
applied to basis from sales of REO assets and related activities; prior period
amounts have not been adjusted to reflect this change as such amounts were
immaterial.
                                                Three Months Ended                     Nine Months Ended
                                                   September 30,                         September 30,
                                              2021               2020               2021               2020
Collections applied to investment in
receivable portfolios, net                $ 250,465          $ 197,259          $ 803,185          $ 540,101
Less: Changes in recoveries                 (65,913)           (30,451)          (176,628)             2,203
REO proceeds applied to basis                 3,629              5,598             15,208              5,598

Recoveries applied to principal balance $ 188,181 $ 172,406

    $ 641,765          $ 547,902



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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                     Nine Months Ended
                                                          September 30,                         September 30,
                                                     2021               2020               2021               2020
GAAP total operating expenses, as reported       $ 245,977          $ 261,221          $ 747,948          $ 709,441
Adjustments:
Operating expenses related to non-portfolio
purchasing and recovery business(1)                (47,088)           (54,001)          (133,008)          (137,876)
CFPB settlement fees(2)                                  -            (15,009)                 -            (15,009)
Stock-based compensation expense                    (3,847)            (3,884)           (12,903)           (13,189)
Acquisition, integration and restructuring
related operating expenses(3)                            -                 23                  -               (132)

Adjusted operating expenses related to portfolio
purchasing and recovery business                 $ 195,042          $ 

188,350 $ 602,037 $ 543,235

________________________

(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 a charge resulting from the Stipulated Judgment with the
CFPB. We have adjusted for this amount because we believe it is not indicative
of ongoing operations; therefore, adjusting for it enhances comparability to
prior periods, anticipated future periods, and our competitors' results.
(3)Amount represents acquisition, integration and restructuring related
operating expenses. We adjust for this amount because we believe these operating
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                 Nine Months Ended
                                             September 30,                     September 30,
                                           2021              2020             2021             2020
United States                                   35.4  %     36.9  %               34.5  %     36.1  %
Europe                                          31.0  %     28.1  %               30.7  %     28.7  %
Other geographies                               58.7  %     55.6  %               55.4  %     55.5  %
Overall cost per dollar collected               34.4  %     34.9  %         

33.7% 34.5%


Cost-to-collect decreased during the periods presented, primarily attributable
to decreased cost-to-collect in the U.S., driven by continued improvement in
operational efficiencies in the collection process.
Cost-to-collect in Europe increased due to increased spend in legal collection
channel. Our European legal collection channel spending reduced substantially in
2020 as a result of the COVID-19 pandemic, the legal collection channel spending
increased substantially in the third quarter of 2021 as compared to the same
period in the prior year and drove the higher overall cost-to-collect in Europe.
Collections from other geographies continue to decline as we continue to focus
on the U.S. and 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.
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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.

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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                                                                                           Cumulative Collections through September 30, 2021
Purchase          Price(1)           <2012           2012            2013             2014             2015             2016             2017             2018             2019             2020             2021            Total(2)        Multiple(3)
United States:
<2012          $  2,143,750      $ 3,983,166      $ 760,285      $   554,597      $   391,737      $   293,528      $   206,933      $   155,456

$ 121,545 $ 99,300 $ 77,101 $ 52,866 $ 6,696,514

           3.1
2012                548,803                -        187,721          350,134          259,252          176,914          113,067           74,507           48,832           37,327           27,797           19,564         1,295,115           2.4
2013                551,866                -              -          

230 051 397 646 298 068 203 386 147 503

          107,399           84,665           64,436           45,642         1,578,796           2.9
2014                517,651                -              -                -          144,178          307,814          216,357          142,147           94,929           69,059           47,628           27,714         1,049,826           2.0
2015                499,075                -              -                -                -          105,610          231,102          186,391          125,673           85,042           64,133           34,788           832,739           1.7
2016                553,170                -              -                -                -                -          110,875          283,035          234,690          159,279          116,452           71,702           976,033           1.8
2017                528,087                -              -                -                -                -                -          111,902          315,853          255,048          193,328          117,087           993,218           1.9
2018                630,553                -              -                -                -                -                -                -          175,042          351,696          308,302          184,002         1,019,042           1.6
2019                676,937                -              -                -                -                -                -                -                -          174,693          416,315          317,708           908,716           1.3
2020                539,131                -              -                -                -                -                -                -                -                -          213,450          335,862           549,312           1.0
2021                283,288                -              -                -                -                -                -                -                -                -                -           72,670            72,670           0.3
Subtotal          7,472,311        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        1,279,605        15,971,981           2.1
Europe:
2013                619,079                -              -          134,259          249,307          212,129          165,610          146,993          132,663          113,228           93,203           72,423         1,319,815           2.1
2014                623,129                -              -                -          135,549          198,127          156,665          137,806          129,033          105,337           84,255           65,210         1,011,982           1.6
2015                419,941                -              -                -                -           65,870          127,084          103,823           88,065           72,277           55,261           44,776           557,156           1.3
2016                258,218                -              -                -                -                -           44,641           97,587           83,107           63,198           51,609           39,233           379,375           1.5
2017                461,571                -              -                -                -                -                -           68,111          152,926          118,794           87,549           65,295           492,675           1.1
2018                433,302                -              -                -                -                -                -                -           49,383          118,266           78,846           61,584           308,079           0.7
2019                273,354                -              -                -                -                -                -                -                -           44,118           80,502           67,610           192,230           0.7
2020                116,899                -              -                -                -                -                -                -                -                -           22,721           46,174            68,895           0.6
2021                196,864                -              -                -                -                -                -                -                -                -                -           24,039            24,039           0.1
Subtotal          3,402,357                -              -          134,259          384,856          476,126          494,000          554,320

635 177 635 218 553 946 486 344 4 354 246

           1.3
Other geographies:
2012                  6,721                -              -            3,848            2,561            1,208              542              551              422              390              294              199            10,015           1.5
2013                 29,465                -              -            6,617           17,615           10,334            4,606            3,339            2,468            1,573            1,042              708            48,302           1.6
2014                 85,418                -              -                -            9,652           16,062           18,403            9,813            7,991            6,472            4,300            3,204            75,897           0.9
2015                 81,232                -              -                -                -           15,061           57,064           43,499           32,622           17,499            4,688            3,058           173,491           2.1
2016                 61,595                -              -                -                -                -           29,269           39,710           28,992           16,078            5,196            3,199           122,444           2.0
2017                 49,670                -              -                -                -                -                -           15,471           23,075           15,383            7,303            5,211            66,443           1.3
2018                 25,731                -              -                -                -                -                -                -           12,910           15,008            5,892            3,905            37,715           1.5
2019                  2,468                -              -                -                -                -                -                -                -            3,198              245              145             3,588           1.5

Subtotal            342,300                -              -           10,465           29,828           42,665          109,884          112,383          108,480           75,601           28,960           19,629           537,895           1.6
Total          $ 11,216,968      $ 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      $ 1,785,578      $ 20,864,122           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 September 30, 2021, excluding
collections on behalf of others.
(3)Cumulative Collections Multiple ("Multiple") through September 30, 2021
refers to collections as a multiple of purchase price.
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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):
                                                                                 Estimated                                          Total Estimated Gross
                                                         Historical              Remaining              Total Estimated                 Collections to
                           Purchase Price(1)           Collections(2)           Collections            Gross Collections                Purchase Price
United States:
<2011                    $        1,759,963          $     5,523,904          $      87,587          $        5,611,491                          3.2
2011                                383,787                1,172,610                 50,965                   1,223,575                          3.2
2012                                548,803                1,295,115                 51,217                   1,346,332                          2.5
2013(3)                             551,866                1,578,796                139,113                   1,717,909                          3.1
2014(3)                             517,651                1,049,826                 81,461                   1,131,287                          2.2
2015                                499,075                  832,739                 90,200                     922,939                          1.8
2016                                553,170                  976,033                168,721                   1,144,754                          2.1
2017                                528,087                  993,218                281,518                   1,274,736                          2.4
2018                                630,553                1,019,042                410,059                   1,429,101                          2.3
2019                                676,937                  908,716                736,161                   1,644,877                          2.4
2020                                539,131                  549,312                866,983                   1,416,295                          2.6
2021                                283,288                   72,670                622,332                     695,002                          2.5
Subtotal                          7,472,311               15,971,981              3,586,317                  19,558,298                          2.6
Europe:
2013(3)                             619,079                1,319,815                749,120                   2,068,935                          3.3
2014(3)                             623,129                1,011,982                549,610                   1,561,592                          2.5
2015(3)                             419,941                  557,156                359,332                     916,488                          2.2
2016                                258,218                  379,375                300,482                     679,857                          2.6
2017                                461,571                  492,675                492,610                     985,285                          2.1
2018                                433,302                  308,079                546,999                     855,078                          2.0
2019                                273,354                  192,230                454,661                     646,891                          2.4
2020                                116,899                   68,895                285,049                     353,944                          3.0
2021                                196,864                   24,039                420,688                     444,727                          2.3
Subtotal                          3,402,357                4,354,246              4,158,551                   8,512,797                          2.5
Other geographies:
2012                                  6,721                   10,015                      -                      10,015                          1.5
2013                                 29,465                   48,302                      -                      48,302                          1.6
2014                                 85,418                   75,897                 43,032                     118,929                          1.4
2015                                 81,232                  173,491                  8,713                     182,204                          2.2
2016                                 61,595                  122,444                      -                     122,444                          2.0
2017                                 49,670                   66,443                 18,372                      84,815                          1.7
2018                                 25,731                   37,715                      -                      37,715                          1.5
2019                                  2,468                    3,588                      -                       3,588                          1.5

Subtotal                            342,300                  537,895                 70,117                     608,012                          1.8
Total                    $       11,216,968          $    20,864,122          $   7,814,985          $       28,679,107                          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 September 30, 2021, excluding
collections on behalf of others.
(3)Includes portfolios acquired in connection with certain business
combinations.

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Estimated Remaining Gross Collections by Year of Purchase
The following table summarizes our estimated remaining gross collections from
purchased receivable portfolios and estimated future cash flows from real
estate-owned assets by year of purchase (in thousands):
                                                                                                   Estimated Remaining Gross Collections by Year of Purchase(1)
                          2021(3)               2022                 2023                2024               2025               2026               2027               2028               2029               >2029               Total(2)
United States:
<2011                   $   8,163          $    26,306          $    18,251          $  12,631          $   8,595          $   5,815          $   3,846          $   2,374          $   1,221          $       385          $    87,587
2011                        4,224               14,326               10,122              7,106              4,993              3,511              2,473              1,744              1,233                1,233               50,965
2012                        4,263               14,238               10,097              7,064              4,964              3,492              2,459              1,735              1,227                1,678               51,217
2013(4)                    12,543               38,277               26,397             18,705             13,264              9,408              6,674              4,737              3,363                5,745              139,113
2014(4)                     6,876               22,954               15,764             10,755              7,580              5,364              3,801              2,696              1,916                3,755               81,461
2015                        7,838               26,045               17,718             12,070              8,048              5,578              3,935              2,786              1,977                4,205               90,200
2016                       15,720               50,154               33,272             22,245             15,002              9,910              6,788              4,770              3,375                7,485              168,721
2017                       25,052               80,723               52,589             37,768             25,771             18,021             12,424              8,833              6,254               14,083              281,518
2018                       39,157              123,594               82,906             55,370             36,686             24,444             16,246             10,558              7,198               13,900              410,059
2019                       69,662              209,416              140,462             99,741             67,544             46,306             31,966             22,256             15,288               33,520              736,161
2020                       77,996              265,217              165,362            113,679             77,896             52,503             35,916             25,042             17,506               35,866              866,983
2021                       42,573              175,202              144,756             84,334             54,499             37,777             25,627             17,916             12,643               27,005              622,332
Subtotal                  314,067            1,046,452              717,696            481,468            324,842            222,129            152,155            105,447             73,201              148,860            3,586,317
Europe:
2013(4)                    21,579               83,496               77,549             70,589             65,365             59,671             54,055             49,522             45,689              221,605              749,120
2014(4)                    18,058               68,075               61,742             54,979             49,564             43,928             38,357             34,947             31,261              148,699              549,610
2015(4)                    12,661               47,050               41,672             37,045             33,006             29,192             25,089             22,323             19,879               91,415              359,332
2016                       13,636               47,744               42,403             35,051             30,149             25,566             20,491             17,246             14,291               53,905              300,482
2017                       21,184               76,732               65,552             55,338             46,490             38,930             33,538             28,306             24,451              102,089              492,610
2018                       20,441               76,964               70,419             61,516             53,214             46,010             38,916             33,593             28,522              117,404              546,999
2019                       20,499               73,974               63,270             53,923             45,296             37,549             29,880             24,897             21,167               84,206              454,661
2020                       12,604               46,701               42,463             34,385             27,902             24,548             19,793             16,193             13,261               47,199              285,049
2021                       13,972               64,070               59,243             48,965             41,491             35,532             31,164             26,798             22,480               76,973              420,688
Subtotal                  154,634              584,806              524,313            451,791            392,477            340,926            291,283            253,825            221,001              943,495            4,158,551
Other geographies:
2012                            -                    -                    -                  -                  -                  -                  -                  -                  -                    -                    -
2013                            -                    -                    -                  -                  -                  -                  -                  -                  -                    -                    -
2014                        2,095                7,022                6,502              5,814              4,758              2,796              1,591              1,448              1,448                9,558               43,032
2015                          296                1,001                1,217              1,131              1,044                754                631                529                445                1,665                8,713
2016                            -                    -                    -                  -                  -                  -                  -                  -                  -                    -                    -
2017                          711                2,621                2,385              2,101              1,894              1,428                822                745                745                4,920               18,372
2018                            -                    -                    -                  -                  -                  -                  -                  -                  -                    -                    -
2019                            -                    -                    -                  -                  -                  -                  -                  -                  -                    -                    -

Subtotal                    3,102               10,644               10,104              9,046              7,696              4,978              3,044              2,722              2,638               16,143               70,117
Portfolio ERC             471,803            1,641,902            1,252,113            942,305            725,015            568,033            446,482            361,994            296,840            1,108,498            7,814,985
REO ERC(5)                 10,393               21,264               17,499              9,377              3,471              1,596                269                218                281                    -               64,368
Total ERC               $ 482,196          $ 1,663,166          $ 1,269,612          $ 951,682          $ 728,486          $ 569,629          $ 446,751          $ 362,212          $ 297,121          $ 1,108,498          $ 7,879,353

________________________

(1)As of September 30, 2021, ERC for Zero Basis Portfolios include approximately
$87.6 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 $70.1 million from cost recovery
portfolios, primarily in other geographies.
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(2)Represents the expected remaining gross cash collections over a 180-month
period. As of September 30, 2021, ERC for 84-month and 120-month periods were:
                       84-Month ERC      120-Month ERC
  United States       $  3,341,255      $    3,515,672
  Europe                 2,932,487           3,537,275
  Other geographies         50,659              58,434
Portfolio ERC            6,324,401           7,111,381
REO ERC                     63,872              64,368
Total ERC             $  6,388,273      $    7,175,749


(3)Amount for 2021 consists of three months data from October 1, 2021 to
December 31, 2021.
(4)Includes portfolios acquired in connection with certain business
combinations.
(5)Real estate-owned assets ERC includes approximately $62.7 million and $1.7
million of estimated future cash flows for Europe and Other Geographies,
respectively.
Estimated Future Collections Applied to Investment in Receivable Portfolios
As of September 30, 2021, we had $3.1 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
2021(1)                                              $      120,224          $    54,385          $            3,074          $   177,683
2022                                                        422,620              195,574                      10,644              628,838
2023                                                        295,722              185,481                       9,111              490,314
2024                                                        194,942              158,762                       5,814              359,518
2025                                                        129,002              138,140                       4,758              271,900
2026                                                         87,199              121,473                       2,796              211,468
2027                                                         58,767              101,652                       1,591              162,010
2028                                                         40,550               89,193                       1,448              131,191
2029                                                         28,225               78,677                       1,448              108,350
2030                                                         19,696               70,113                       1,448               91,257
2031                                                         14,002               66,216                       1,448               81,666
2032                                                         10,159               63,471                       1,448               75,078
2033                                                          7,694               65,008                         649               73,351
2034                                                          6,006               67,741                           -               73,747
2035                                                          4,928               75,380                           -               80,308
2036                                                          2,762               63,830                           -               66,592
Total                                                $    1,442,498          $ 1,595,096          $           45,677          $ 3,083,271

________________________

(1) The amount for 2021 is made up of data at three months of October 1, 2021 To
December 31, 2021.

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Purchases by Quarter
The following table summarizes the receivable portfolios we purchased by
quarter, and the respective purchase prices and fair value (in thousands):
               # of                          Purchase
Quarter      Accounts       Face Value         Price
Q1 2019        854         $ 1,732,977      $ 262,335
Q2 2019        778           2,307,711        242,697
Q3 2019      1,255           5,313,092        259,910
Q4 2019        803           2,241,628        234,916
Q1 2020        943           1,703,022        214,113
Q2 2020        754           1,305,875        147,939
Q3 2020        735           1,782,733        170,131
Q4 2020        558           1,036,332        127,689
Q1 2021        749           1,328,865        170,178
Q2 2021        612           1,151,623        142,728
Q3 2021        767           1,403,794        168,188



Liquidity and Capital Resources
Liquidity
The following table summarizes our cash flow activities for the periods
presented (in thousands):
                                                   Nine Months Ended September 30,
                                                         2021                     2020
                                                             (Unaudited)
Net cash provided by operating activities   $        211,990                   $ 249,982
Net cash provided by investing activities            312,808                

7,575

Net cash used in financing activities               (564,673)               

(267,891)


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 $212.0 million and $250.0 million
during the nine months ended September 30, 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 recoveries, stock-based
compensation charges, and changes in operating assets and liabilities which
reflect timing differences between the receipt and payment of cash associated
with transactions and when they are recognized in results of operations.
Investing Cash Flows
Cash flows relating to investing activities is primarily affected by receivable
portfolio purchases offset by collection proceeds applied to the principal of
our receivable portfolios.
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Net cash provided by investing activities was $312.8 million and $7.6 million
during the nine months ended September 30, 2021 and 2020, respectively.
Receivable portfolio purchases, net of put-backs, were $473.0 million and $518.0
million during the nine months ended September 30, 2021 and 2020, respectively.
Collection proceeds applied to the investment in receivable portfolios, net,
were $803.2 million and $540.1 million during the nine months ended September
30, 2021 and 2020, respectively.
Financing Cash Flows
Financing cash flows are generally affected by borrowings under our credit
facilities and proceeds from various debt offerings, offset by repayments of
amounts outstanding under our credit facilities and repayments of various notes.
Net cash used in financing activities was $564.7 million and $267.9 million
during the nine months ended September 30, 2021 and 2020, respectively.
Borrowings under our credit facilities were $418.9 million and $1,695.9 million
during the nine months ended September 30, 2021 and 2020, respectively.
Repayments of amounts outstanding under our credit facilities were $714.0
million and $2,051.8 million during the nine months ended September 30, 2021 and
2020, respectively. Proceeds from the issuance of senior secured notes were
$353.7 million and $410.8 million during the nine months ended September 30,
2021 and 2020, respectively. Repayments of senior secured notes were $349.4
million and $152.4 million during the nine months ended September 30, 2021 and
2020, respectively. We paid $161.0 million of convertible senior notes that
matured on March 15, 2021 and $89.4 million of convertible senior notes using
cash on hand during the nine months ended September 30, 2021 and 2020,
respectively.
Capital Resources
Historically, we have met our cash requirements by utilizing our cash flows from
operations, cash collections from our investment in receivable portfolios, bank
borrowings, debt offerings, and equity offerings. Depending on the capital
markets, we consider additional financings to fund our operations and
acquisitions. 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 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 and nine months ended September 30, 2021, we repurchased 854,002 and
1,976,857 shares of our common stock for approximately $40.7 million and $88.1
million, respectively. Our practice is to retire the shares repurchased.
On November 3, 2021, we announced our intent to launch a tender offer on
November 4, 2021 to purchase with cash up to $300.0 million of shares of our
common stock. We expect to fund the purchase of shares pursuant to the tender
offer, together with all related fees and expenses, with cash and cash
equivalents. We may also make a drawing from our Global Senior Facility. We will
retire the shares purchased from the tender offer.
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 September 30, 2021 consisted of $20.7
million held by U.S.-based entities and $137.5 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 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 $28.3 million as of September 30, 2021.
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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.
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