Encore Capital Group Announces Record Third Quarter 2012 Financial Results

Earnings Per Share From Continuing Operations Increased 37% to $0.82 per Fully Diluted Share; Quarterly Gross Collections Increased 30% to $246 Million

SAN DIEGO, Nov. 1, 2012 /PRNewswire/ -- Encore Capital Group, Inc. (Nasdaq: ECPG), through its subsidiaries (the "Company"), a leading provider of debt management and recovery solutions for consumers and property owners across a broad range of assets, today reported consolidated financial results for the third quarter ended September 30, 2012.

"For the quarter, we delivered strong financial results, including record earnings, collections and operating cash flow," said Brandon Black, the Company's President and Chief Executive Officer. "We've been very disciplined with the investments we've made and how we've executed our strategies, and this continues to drive our performance across the board."

The Company also discussed the major changes taking place in the industry that are likely to lead to increased consolidation in the years ahead.  "We built Encore for the exact business and regulatory environment we're now entering," Black commented.  "Only companies with access to low cost capital, a differentiated operating model, an operating cost advantage and a real commitment to respecting consumers will succeed."

Third Quarter of 2012 Highlights Include:

  • Gross collections from the portfolio purchasing and recovery business were $246.0 million, a 30% increase over the $189.1 million in the same period of the prior year.
  • Investment in receivable portfolios in the portfolio purchasing and recovery business was $47.3 million, to purchase $1.1 billion in face value of debt, compared to $65.7 million, to purchase $2.0 billion in face value of debt in the same period of the prior year. 
  • Available capacity under the Encore Capital Group revolving credit facility, subject to borrowing base and applicable debt covenants, was $145.5 million as of September 30, 2012.  Total debt, consisting of the revolving credit facility, senior secured notes and capital lease obligations, was $615.1 million as of September 30, 2012, compared to $389.0 million as of December 31, 2011.
  • Revenue from receivable portfolios in the portfolio purchasing and recovery business, net of allowance adjustments, was $140.7 million, a 21% increase over the $115.8 million in the same period of the prior year.  Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of net portfolio allowances, decreased to approximately 57% from 62% in the same period of the prior year.
  • Total operating expenses were $103.6 million, a 22% increase over the $85.2 million in the same period of the prior year.  Adjusted operating expense (operating expenses excluding stock-based compensation expense, and tax lien transfer segment operating expenses) per dollar collected decreased to 40.5% compared to 43.8% in the same period of the prior year.
  • Adjusted EBITDA, defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expense, and portfolio amortization, was $150.9 million, a 41% increase over the $106.9 million in the same period of the prior year.
  • Total interest expense for the portfolio purchasing and recovery segment increased to $7.0 million, as compared to $5.2 million in the same period of the prior year.
  • Income from continuing operations was $21.3 million, or $0.82 per fully diluted share, compared to income from continuing operations of $15.4 million, or $0.60 per fully diluted share in the same period of the prior year.
  • Total stockholders' equity per share was $16.64 at the end of the quarter, a 15.0% increase over $14.46 at December 31, 2011.

Conference Call and Webcast

The Company will hold a conference call today at 2:00 p.m. Pacific time / 5:00 p.m. Eastern time to discuss third quarter and full year results.

Members of the public are invited to listen to the event via a listen-only telephone conference call line or the Internet. To access the live telephone conference call, please dial (877) 670-9781 or (408) 940-3818. To access the live webcast via the Internet, log on at the Investors page of the Company's website at www.encorecapital.com.

Non-GAAP Financial Measures

The Company has included information concerning Adjusted EBITDA because management utilizes this information, which is materially similar to a financial measure contained in covenants used in the Company's credit agreement, in the evaluation of its operations and believes that this measure is a useful indicator of the Company's ability to generate cash collections in excess of operating expenses through the liquidation of its receivable portfolios. The Company has included information concerning adjusted operating expenses excluding stock-based compensation expense and tax lien transfer segment operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented. Adjusted EBITDA and adjusted operating expenses have not been prepared in accordance with generally accepted accounting principles (GAAP). These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income and total operating expenses as indicators of the Company's operating performance. Further, these non-GAAP financial measures, as presented by the Company, may not be comparable to similarly titled measures reported by other companies. The Company has included a reconciliation of Adjusted EBITDA to reported earnings under GAAP and a reconciliation of adjusted operating expenses excluding stock-based compensation expense, and tax lien transfer segment operating expenses to the GAAP measure total operating expenses.

About Encore Capital Group, Inc.

Encore Capital Group is a leading provider of debt management and recovery solutions for consumers and property owners across a broad range of assets. Through its subsidiaries, the Company purchases portfolios of consumer receivables from major banks, credit unions, and utility providers, and partners with individuals as they repay their obligations and work toward financial recovery. Through its Propel Financial Services, LLC subsidiary, the Company assists property owners who are delinquent on their property taxes by structuring affordable monthly payment plans.

Headquartered in San Diego, Encore Capital Group is a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock of the Russell 2000, the S&P SmallCap 600, and the Wilshire 4500. More information about the Company can be found at www.encorecapital.com. The Company's website and the information contained therein, is not incorporated into and is not a part of this press release.

Forward Looking Statements

The statements in this press release that are not historical facts, including, most importantly, those statements preceded by, or that include, the words "may," "believe," "projects," "expects," "anticipates" or the negation thereof, or similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). These statements may include, but are not limited to, statements regarding our future operating results, performance, business plans or prospects. For all "forward-looking statements," the Company claims the protection of the safe harbor for forward-looking statements contained in the Reform Act. Such forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company and its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors are discussed in the reports filed by the Company with the Securities and Exchange Commission, including the most recent reports on Forms 10-K, 10-Q and 8-K, each as it may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements.


Contact:

Encore Capital Group, Inc.

Paul Grinberg (858) 309-6904
paul.grinberg@encorecapital.com

Adam Sragovicz (858) 309-9509
adam.sragovicz@encorecapital.com

 

FINANCIAL TABLES FOLLOW


 

 

ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Financial Condition

(In Thousands, Except Par Value Amounts)

(Unaudited)

 


September 30,
2012

December 31,
2011

Assets



Cash and cash equivalents

$          19,263

$      8,047

Accounts receivable, net

2,471

3,265

Investment in receivable portfolios, net

811,620

716,454

Deferred court costs, net

37,561

38,506

Property tax payment agreements receivable, net

135,190

Interest receivable

4,180

Property and equipment, net

19,771

17,796

Other assets

23,068

11,968

Goodwill

55,446

15,985

Identifiable intangible assets, net

515

462




          Total assets

$     1,109,085

$  812,483




Liabilities and stockholders' equity



Liabilities:



Accounts payable and accrued liabilities

$          43,108

$    29,628

Deferred tax liabilities, net

17,532

15,709

Debt

615,131

388,950

Other liabilities

2,132

6,661




Total liabilities

677,903

440,948




Commitments and contingencies



Stockholders' equity:



Convertible preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and outstanding

Common stock, $.01 par value, 50,000 shares authorized, 25,002 shares and 24,520 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively

250

245

Additional paid-in capital

133,005

123,406

Accumulated earnings

299,162

249,852

Accumulated other comprehensive loss

(1,235)

(1,968)




Total stockholders' equity

431,182

371,535




Total liabilities and stockholders' equity

$     1,109,085

$  812,483







See accompanying notes to condensed consolidated financial statements


 

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In Thousands, Except Per Share Amounts)

 


Three Months Ended

September 30,

Nine Months Ended

September 30,


2012

2011

2012

2011

Revenues





Revenue from receivable portfolios, net

$ 140,682

$ 115,843

$ 405,818

$ 332,262

Tax lien transfer





        Interest income

5,585

8,567

        Interest expense

(1,475)

(2,125)






Net interest income

4,110

6,442






               Total revenues

144,792

115,843

412,260

332,262






Operating expenses





Salaries and employee benefits

25,397

20,087

72,891

57,458

Cost of legal collections

43,544

40,169

123,203

117,364

Other operating expenses

14,829

9,904

38,854

26,944

Collection agency commissions

4,227

3,264

12,352

10,774

General and administrative expenses

14,091

10,704

46,331

29,471

Depreciation and amortization

1,533

1,054

4,193

2,916






              Total operating expenses

103,621

85,182

297,824

244,927






Income from operations

41,171

30,661

114,436

87,335






Other (expense) income





Interest expense

(7,012)

(5,175)

(19,024)

(16,137)

Other income (expense)

1,036

(342)

1,385

(182)






       Total other expense

(5,976)

(5,517)

(17,639 )

(16,319 )






Income from continuing operations before income taxes

35,195

25,144

96,797

71,016

Provision for income taxes

(13,887)

(9,834)

(38,393)

(27,658)






Income from continuing operations

21,308

15,310

58,404

43,358

Income (loss) from discontinued operations, net of tax

60

(9,094)

466






Net income

$   21,308

$   15,370

$   49,310

$   43,824






Weighted average shares outstanding:





Basic

25,071

24,638

24,930

24,493

Diluted

26,047

25,604

25,920

25,636

Basic earnings (loss) per share from:





Continuing operations

$       0.85

$       0.62

$       2.34

$     1.77

Discontinued operations

$       0.00

$       0.00

$     (0.36)

$     0.02

Net basic earnings per share

$       0.85

$       0.62

$       1.98

$     1.79

Diluted earnings (loss) per share from:





Continuing operations

$       0.82

$       0.60

$       2.25

$     1.69

Discontinued operations

$       0.00

$       0.00

$     (0.36)

$     0.02

Net diluted earnings per share

$       0.82

$       0.60

$       1.90

$     1.71

Other comprehensive gain (loss):





Unrealized gain (loss) on derivative instruments

3,027

(2,042 )

1,205

(2,094 )

Income tax (provision) benefit related to unrealized gain (loss) on derivative instruments

(1,186)

796

(472)

819






Other comprehensive gain (loss), net of tax

1,841

(1,246)

733

(1,275)






Comprehensive income

$   23,149

$     14,124

$   50,043

$   42,549






See accompanying notes to condensed consolidated financial statements 


 

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)


Nine Months Ended

September 30,


2012

2011

Operating activities:



Net income

$     49,310

$     43,824

Adjustments to reconcile net income to net cash provided by operating activities



Depreciation and amortization

4,193

2,916

Impairment charge for goodwill and identifiable intangible assets

10,400

Amortization of loan costs and premium on property tax payment agreements receivable

2,091

1,367

Stock-based compensation expense

6,710

5,980

Income tax provision in excess of (less than) income tax payments

1,823

(1,472)

Excess tax benefit from stock-based payment arrangements

(3,600)

(4,904)

Loss on sale of discontinued operations

2,416

(Reversal) provision for allowances on receivable portfolios, net

(1,506)

8,109

Changes in operating assets and liabilities, net of effects of acquisition



Other assets

(20)

1,944

Deferred court costs

945

(3,968)

Prepaid income tax and income taxes payable

(8,407)

3,423

Accounts payable, accrued liabilities and other liabilities

1,798

1,012




          Net cash provided by operating activities

66,153

58,231




Investing activities:



Cash paid for acquisition, net of cash acquired

(186,731)

Purchases of receivable portfolios

(408,757)

(250,107)

Collections applied to investment in receivable portfolios, net

313,205

234,726

Proceeds from put-backs of receivable portfolios

1,892

2,343

Originations of property tax payment agreements receivable

(22,912)

Collections applied to property tax payment agreements receivable, net

24,967

Purchases of property and equipment

(3,665)

(3,458)




         Net cash used in investing activities

(282,001)

(16,496)




Financing activities:



Payment of loan costs

(1,832)

(835)

Proceeds from senior secured notes

25,000

Proceeds from revolving credit facilities

390,399

61,000

Repayment of revolving credit facilities

(163,048)

(127,000)

Proceeds from exercise of stock options

5,181

1,287

Taxes paid related to net share settlement of equity awards

(2,287)

(3,476)

Excess tax benefit from stock-based payment arrangements

3,600

4,904

Repayment of capital lease obligations

(4,949)

(2,848)




                  Net cash provided by (used in) financing activities

227,064

(41,968)




Net increase (decrease) in cash and cash equivalents

11,216

(233)

Cash and cash equivalents, beginning of period

8,047

10,905




Cash and cash equivalents, end of period

$     19,263

$     10,672




Supplemental disclosures of cash flow information:



Cash paid for interest

$     18,634

$     14,591

Cash paid for income taxes

36,840

24,860

Supplemental schedule of non-cash investing and financing activities:



Fixed assets acquired through capital lease

2,817

2,434

 

See accompanying notes to condensed consolidated financial statements



 

ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted EBITDA to GAAP Net Income and Adjusted Operating Expenses Excluding Stock-based Compensation Expense and Tax Lien Transfer Segment Operating Expenses to GAAP Total Operating Expenses
(In Thousands) (Unaudited)

 


Three Months Ended
September 30,


2012

2011

GAAP net income, as reported

$   21,308

$  15,310

Loss (income) from discontinued operations, net of tax

-

(60)

Interest expense

7,012

5,175

Provision for income taxes

13,887

9,834

Depreciation and amortization

1,533

1,054

Amount applied to principal on receivable portfolios

105,283

73,187

Stock-based compensation expense

1,905

2,405




Adjusted EBITDA

$150,928

$106,905






Three Months Ended
September 30,


2012

2011

GAAP total operating expenses, as reported

$    103,621

$  85,182

Stock-based compensation expense

(1,905)

(2,405)

Tax lien transfer segment operating expenses

(2,055)




Adjusted operating expenses excluding stock-based compensation expense, and tax lien transfer segment operating expenses

$99,661

$82,777








As of

Sep 30, 2012

As of Dec 31,

2011

GAAP stockholders' equity, as reported

$             431,182

$ 371,535

Diluted shares outstanding

25,920

25,690




Stockholders' equity per share

$16.64

$14.46




 

SOURCE Encore Capital Group, Inc.



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