Encore Capital Group Announces Third Quarter 2010 Financial Results

Net Income Reaches $12.3 Million; Gross Collections Increase 25% to $157.4 Million

Oct 26, 2010, 16:05 ET from Encore Capital Group, Inc.

SAN DIEGO, Oct. 26 /PRNewswire-FirstCall/ -- Encore Capital Group, Inc. (Nasdaq: ECPG), a leading distressed consumer debt buying and recovery company, today reported consolidated financial results for the third quarter ended September 30, 2010.

For the third quarter of 2010:

  • Gross collections were $157.4 million, a 25% increase over the $125.7 million in the same period of the prior year.
  • Investment in receivable portfolios was $77.9 million, to purchase $2.6 billion in face value of debt, compared to $77.7 million, to purchase $2.2 billion in face value of debt in the same period of the prior year.  Available capacity under the revolving credit facility, subject to borrowing base and applicable debt covenants, was $81.0 million as of September 30, 2010.  Total debt, consisting of the revolving credit facility, senior secured notes and capital lease obligations, was $334.9 million as of September 30, 2010, an increase of 11% from $303.1 million as of December 31, 2009.
  • Revenue from receivable portfolios, net was $93.8 million, a 23% increase over the $76.4 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, remained at approximately 64%, compared to the same period of the prior year.
  • Revenue from bankruptcy servicing was $4.1 million, a 5% increase over the $3.9 million in the same period of the prior year.
  • Total operating expenses were $74.3 million, a 21% increase over the $61.5 million in the same period of the prior year.  Operating expense (excluding stock-based compensation expense and bankruptcy servicing operating expenses) per dollar collected decreased to 43.9% compared to 45.4% 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 $89.7 million, a 28% increase over the $70.0 million in the same period of the prior year.
  • Total interest expense was $4.9 million, compared to $4.0 million in the same period of the prior year.
  • Net income was $12.3 million or $0.49 per fully diluted share, compared to net income of $9.0 million or $0.37 per fully diluted share in the same period of the prior year.
  • Tangible book value per share, computed by dividing total stockholders' equity less goodwill and identifiable intangible assets by the number of diluted shares outstanding, was $10.72 as of September 30, 2010, a 16% increase over $9.23 as of December 31, 2009.

Additional Financial Information:

Certain events affected the comparability of 2010 versus 2009 quarterly results, as outlined below.  For a more detailed comparison of 2010 versus 2009 results, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010.

  • In the third quarter of 2010, the Company recorded net portfolio allowances of $6.1 million, compared to $4.3 million in the same period of the prior year.  
  • In the third quarter of 2010, the Company expensed $13.1 million in upfront court costs, compared to $9.7 million in the same period of the prior year.

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 results.  Members of the public are invited to listen to the live conference call via the Internet.

To hear the presentation, log on at the Investor Relations page of the Company's website at www.encorecapitalgroup.com.  For those who cannot listen to the live broadcast, a replay of the conference call will be available shortly after the call at the same location.

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 total operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented.  The Company has included information concerning tangible book value per share because management believes that this metric is a meaningful measure of the equity deployed in the business.  Adjusted EBITDA, operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses, and tangible book value per share 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 Encore Capital Group's operating performance and total stockholders' equity as an indicator of Encore Capital Group's financial condition.  Further, these non-GAAP financial measures, as presented by Encore Capital Group, 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, a reconciliation of operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses to the GAAP measure total operating expenses, and a reconciliation of tangible book value per share to the GAAP measure total stockholders' equity in the attached financial tables.

About Encore Capital Group, Inc.

Encore Capital Group is a leader in consumer debt buying and recovery.  We purchase portfolios of defaulted consumer receivables from banks, credit unions, consumer finance companies, commercial retailers, auto finance companies and telecommunication companies and manage them by partnering with individuals as they repay their obligations and work toward financial recovery.

Headquartered in San Diego, we are a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock in the Russell 2000 and the Wilshire 4500.  Our performance derives from our sophisticated and widespread use of analytics, our investments in data and consumer intelligence, our cost leadership position (based on our enterprise-wide, account-level cost database as well as our India facility), and our commitment to see principled intent drive every consumer interaction.  More information on the Company can be found at www.encorecapitalgroup.com.

Contact:

Encore Capital Group, Inc.

Paul Grinberg (858) 309-6904

paul.grinberg@encorecapitalgroup.com

or

Ren Zamora (858) 560-3598

ren.zamora@encorecapitalgroup.com

FINANCIAL TABLES FOLLOW

ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Financial Condition

(In Thousands, Except Par Value Amounts)

(Unaudited)

September 30, 2010

December 31, 2009 

Assets

Cash and cash equivalents

$  11,531

$  8,388

Accounts receivable, net

2,983

3,134

Investment in receivable portfolios, net

580,154

526,877

Deferred court costs, net

26,530

25,957

Property and equipment, net

11,599

9,427

Prepaid income tax

2,662

Other assets

11,784

4,252

Goodwill

15,985

15,985

Identifiable intangible assets, net

846

1,139

                   Total assets

$  664,074

$  595,159

Liabilities and stockholders' equity

Liabilities:

Accounts payable and accrued liabilities

$  20,606

$  21,815

Income taxes payable

2,681

Deferred tax liabilities, net

16,772

16,980

Deferred revenue

4,228

5,481

Debt

334,922

303,075

Other liabilities

1,033

2,036

Total liabilities

377,561

352,068

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, 23,905 shares and 23,359 shares issued and outstanding as of September 30, 2010 and December 31, 2009, respectively

239

234

Additional paid-in capital

112,081

104,261

Accumulated earnings

174,723

139,842

Accumulated other comprehensive loss

(530)

(1,246)

Total stockholders' equity

286,513

243,091

                   Total liabilities and stockholders' equity

$  664,074

$  595,159

ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Income

(In Thousands, Except Per Share Amounts)

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2010

2009

2010

2009

Revenue

Revenue from receivable portfolios, net

$  93,822

$  76,448

$  268,574

$  222,688

Servicing fees and other related revenue

4,145

3,938

12,962

12,179

              Total revenue

97,967

80,386

281,536

234,867

Operating expenses

Salaries and employee benefits (excluding stock-based compensation expense)

16,166

14,411

48,135

43,130

Stock-based compensation expense

1,549

1,261

4,756

3,335

Cost of legal collections

33,851

26,092

91,519

84,665

Other operating expenses

9,512

6,034

27,653

18,612

Collection agency commissions

5,389

5,795

17,098

13,483

General and administrative expenses

6,982

7,280

21,286

20,074

Depreciation and amortization

816

652

2,241

1,895

             Total operating expenses

74,265

61,525

212,688

185,194

Income before other (expense) income and income taxes

23,702

18,861

68,848

49,673

Other (expense) income

Interest expense

(4,928)

(3,970)

(14,346)

(12,201)

Gain on repurchase of convertible notes, net

3,268

Other income (expense)

148

61

250

(11)

      Total other expense

(4,780)

(3,909)

(14,096)

(8,944)

Income before income taxes

18,922

14,952

54,752

40,729

Provision for income taxes

(6,632)

(5,948)

(19,871)

(16,087)

Net income

$  12,290

$  9,004

$  34,881

$  24,642

Weighted average shares outstanding:

Basic

23,947

23,225

23,793

23,177

Diluted

25,154

24,199

25,012

23,936

Earnings per share:

Basic

$  0.51

$  0.39

$  1.47

$  1.06

Diluted

$  0.49

$  0.37

$  1.39

$  1.03

ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, In Thousands)

Nine Months Ended

September 30,

2010

2009 

Operating activities:

Net income

$  34,881

$  24,642

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

Depreciation and amortization

2,241

1,895

Amortization of loan costs and debt discount

3,270

3,100

Stock-based compensation expense

4,756

3,335

Gain on repurchase of convertible notes, net

(3,268)

Deferred income tax expense

(208)

437

Excess tax benefit from stock-based payment arrangements

(2,667)

(47)

Provision for allowances on receivable portfolios, net

16,777

14,323

Changes in operating assets and liabilities

Other assets

(763)

(1,623)

Deferred court costs

(573)

625

Prepaid income tax and income taxes payable

(2,815)

11,149

Deferred revenue

(1,253)

472

Accounts payable, accrued liabilities and other liabilities

(2,900)

840

Net cash provided by operating activities

50,746

55,880

Investing activities:

Purchases of receivable portfolios, net of forward flow allocation

(242,857)

(205,378)

Collections applied to investment in receivable portfolios, net

169,896

126,019

Proceeds from put-backs of receivable portfolios

2,907

2,028

Purchases of property and equipment

(1,723)

(3,626)

Net cash used in investing activities

(71,777)

(80,957)

Financing activities:

Payment of loan costs

(6,248)

Proceeds from senior secured notes

50,000

Proceeds from revolving credit facility

111,644

85,500

Repayment of revolving credit facility

(92,144)

(41,500)

Repayment of convertible notes

(42,920)

Repurchase of convertible notes

(22,262)

Proceeds from net settlement of certain call options

524

Proceeds from exercise of stock options

1,773

123

Excess tax benefit from stock-based payment arrangements

2,667

47

Repayment of capital lease obligations

(1,122)

(232)

Net cash provided by financing activities

24,174

21,676

Net increase (decrease) in cash and cash equivalents

3,143

(3,401)

Cash and cash equivalents, beginning of period

8,388

10,341

Cash and cash equivalents, end of period

$  11,531

$  6,940

Supplemental disclosures of cash flow information:

Cash paid for interest

$  7,369

$  9,568

Cash paid for income taxes

$  22,895

$  4,859

Supplemental schedule of non-cash investing and financing activities:

Fixed assets acquired through capital lease

$  2,398

$  224

ENCORE CAPITAL GROUP, INC.

Supplemental Financial Information

Reconciliation of Adjusted EBITDA to GAAP Net Income, Operating Expenses, Excluding Stock-based Compensation Expense and Bankruptcy Servicing Operating Expenses to GAAP Total Operating Expenses, and Tangible Book Value Per Share to GAAP Total Stockholders' Equity

(In Thousands, Except Per Share Amounts)

(Unaudited)

Three Months Ended September 30,

2010 

2009 

GAAP net income, as reported

$  12,290

$  9,004

Interest expense

4,928

3,970

Provision for income taxes

6,632

5,948

Depreciation and amortization

816

652

Amount applied to principal on receivable portfolios

63,507

49,188

Stock-based compensation expense

1,549

1,261

Adjusted EBITDA

$89,722

$70,023

Three Months Ended September 30,

2010

2009

GAAP total operating expenses, as reported

$  74,265

$  61,525

Stock-based compensation expense

(1,549)

(1,261)

Bankruptcy servicing operating expenses

(3,662)

(3,238)

Operating expenses, excluding stock-based compensation expense and bankruptcy servicing operating expenses

$69,054

$57,026

As of

September 30, 2010

As of

December 31, 2009

 GAAP total stockholders' equity, as reported

$286,513

$243,091

 Goodwill

(15,985)

(15,985)

 Identifiable intangible assets, net

(846)

(1,139)

 Tangible book value

$269,682

$225,967

 Diluted shares outstanding

25,154

24,484

 Tangible book value per share

$10.72

$9.23

SOURCE Encore Capital Group, Inc.



RELATED LINKS

http://www.encorecapitalgroup.com