Press release from PR Newswire
Encore Capital Group Announces Record Net Income for Second Quarter 2010 and Increased Revolving Credit Facility
Monday, August 02, 2010
Encore Capital Group Announces Record Net Income for Second Quarter 2010 and Increased Revolving Credit Facility16:05 EDT Monday, August 02, 2010SAN DIEGO, Aug. 2 /PRNewswire-FirstCall/ -- Encore Capital Group, Inc. (Nasdaq: ECPG), a leading distressed consumer debt management company, today reported consolidated financial results for the second quarter ended June 30, 2010.For the second quarter of 2010:Gross collections were $156.8 million, a 28% increase over the $122.4 million in the same period of the prior year.Investment in receivable portfolios was $83.3 million, to purchase $2.2 billion in face value of debt, compared to $82.0 million, to purchase $1.9 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 $45.5 million as of June 30, 2010. Total debt, consisting of the revolving credit facility, convertible senior notes and capital lease obligations, was $328.7 million as of June 30, 2010, an increase of 8% from $303.1 million as of December 31, 2009.Revenue from receivable portfolios, net was $91.8 million, a 24% increase over the $74.0 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, was 60%, compared to 64% in the same period of the prior year.Revenue from bankruptcy servicing was $4.4 million, an 8% increase over the $4.1 million in the same period of the prior year.Total operating expenses were $72.8 million, a 15% increase over the $63.5 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 43.4% compared to 48.3% 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 $90.5 million, a 40% increase over the $64.7 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 $11.7 million or $0.47 per fully diluted share, compared to net income of $6.6 million or $0.28 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 $10.23 as of June 30, 2010, an 11% 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 June 30, 2010.In the second quarter of 2010, the Company recorded net portfolio allowances of $2.8 million, compared to $4.6 million in the same period of the prior year. In the second quarter of 2010, the Company expensed $11.4 million in upfront court costs, compared to $10.6 million in the same period of the prior year.In the second quarter of 2009, the Company repurchased $2.9 million principal amount of its outstanding convertible senior notes, for a total price of $2.4 million, plus accrued interest. These repurchases resulted in a gain of $0.2 million or $0.01 per fully diluted share.Increased Revolving Credit FacilitySeparately, the Company announced today that on July 15, 2010, it obtained an additional $33.0 million in commitments from lenders and exercised a portion of its $100.0 million accordion feature. The Company thereby increased its revolving credit facility to $360.5 million from $327.5 million, leaving $67.0 million available under the accordion feature. Upon exercise of the accordion, there was $78.5 million in available capacity under the facility, subject to borrowing base and applicable debt covenants. Conference Call and WebcastThe Company will hold a conference call today at 2:00 P.M. Pacific time / 5:00 P.M. Eastern time to discuss second 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 MeasuresThe 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 that reflects the equity deployed in the business. 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. 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, 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, Inc. is a systems-driven purchaser and manager of charged-off consumer receivables portfolios. More information on the company can be found at www.encorecapitalgroup.com.Contact:Encore Capital Group, Inc.Paul Grinberg (858) firstname.lastname@example.orgRen Zamora (858) email@example.com FINANCIAL TABLES FOLLOWENCORE CAPITAL GROUP, INC.Condensed Consolidated Statements of Financial Condition(In Thousands, Except Par Value Amounts)(Unaudited)June 30,2010December 31,2009AssetsCash and cash equivalents$ 10,402$ 8,388Accounts receivable, net2,4783,134Investment in receivable portfolios, net566,815526,877Deferred court costs25,95425,957Property and equipment, net11,2349,427Prepaid income tax2,039?Other assets9,7934,252Goodwill15,98515,985Identifiable intangible assets, net9431,139Total assets$ 645,643$ 595,159Liabilities and stockholders' equityLiabilities:Accounts payable and accrued liabilities$ 22,028$ 21,815Income taxes payable?2,681Deferred tax liabilities, net16,95816,980Deferred revenue4,8085,481Debt328,656303,075Other liabilities1,0662,036Total liabilities373,516352,068Commitments and contingencies and subsequent eventsStockholders' equity:Convertible preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and outstanding??Common stock, $.01 par value, 50,000 shares authorized, 23,785 shares and 23,359 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively238234Additional paid-in capital110,117104,261Accumulated earnings162,433139,842Accumulated other comprehensive loss(661)(1,246)Total stockholders' equity272,127243,091Total liabilities and stockholders' equity$ 645,643$ 595,159ENCORE CAPITAL GROUP, INC.Condensed Consolidated Statements of Income(In Thousands, Except Per Share Amounts)(Unaudited)Three Months EndedJune 30,Six Months EndedJune 30,2010200920102009RevenueRevenue from receivable portfolios, net$ 91,845$ 73,965$ 174,752$ 146,240Servicing fees and other related revenue4,3864,0708,8178,241Total revenue96,23178,035183,569154,481Operating expensesSalaries and employee benefits (excluding stock-based compensation expense)16,48414,76231,96928,719Stock-based compensation expense1,4469943,2072,074Cost of legal collections31,23528,62657,66858,573Other operating expenses9,0276,59818,14112,578Collection agency commissions6,4134,79711,7097,688General and administrative expenses7,4257,09714,30412,794Depreciation and amortization7526201,4251,243Total operating expenses72,78263,494138,423123,669Income before other (expense) income and income taxes23,44914,54145,14630,812Other (expense) incomeInterest expense(4,880)(3,958)(9,418)(8,231)Gain on repurchase of convertible notes, net?215?3,268Other (expense) income(90)9102(72)Total other expense(4,970)(3,734)(9,316)(5,035)Income before income taxes18,47910,80735,83025,777Provision for income taxes(6,749)(4,166)(13,239)(10,139)Net income$ 11,730$ 6,641$ 22,591$ 15,638Weighted average shares outstanding:Basic23,71323,16823,67323,145Diluted24,95823,97124,89723,811Earnings per share:Basic$ 0.49$ 0.29$ 0.95$ 0.68Diluted$ 0.47$ 0.28$ 0.91$ 0.66ENCORE CAPITAL GROUP, INC.Condensed Consolidated Statements of Cash Flows(Unaudited, In Thousands)Six Months Ended June 30, 2010 2009Operating activities:Net income$ 22,591$ 15,638Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization1,4251,243Amortization of loan costs and debt discount2,1942,160Stock-based compensation expense3,2072,074Gain on repurchase of convertible notes, net?(3,268)Deferred income tax expense(22)360Excess tax benefit from stock-based payment arrangements(1,813)(28)Provision for allowances on receivable portfolios, net10,7209,991Changes in operating assets and liabilitiesOther assets39(2,456)Deferred court costs3(1,425)Prepaid income tax and income taxes payable(3,027)8,577Deferred revenue(673)197Accounts payable, accrued liabilities and other liabilities(1,072)611Net cash provided by operating activities33,57233,674Investing activities:Purchases of receivable portfolios(164,968)(137,946)Collections applied to investment in receivable portfolios, net112,44681,163Proceeds from put-backs of receivable portfolios1,8641,430Purchases of property and equipment(1,647)(1,400)Net cash used in investing activities(52,305)(56,753)Financing activities:Payment of loan costs(4,660)?Proceeds from revolving credit facility53,00062,500Repayment of revolving credit facility(31,000)(21,500)Repurchase of convertible notes?(22,262)Proceeds from net settlement of certain call options524?Proceeds from exercise of stock options1,68829Excess tax benefit from stock-based payment arrangements1,81328Repayment of capital lease obligations(618)(122)Net cash provided by financing activities20,74718,673Net increase (decrease) in cash and cash equivalents2,014(4,406)Cash and cash equivalents, beginning of period8,38810,341Cash and cash equivalents, end of period$ 10,402$ 5,935Supplemental disclosures of cash flow information:Cash paid for interest$ 6,994$ 6,435Cash paid for income taxes$ 16,544$ 1,626Supplemental schedule of non-cash investing and financing activities:Fixed assets acquired through capital lease$ 1,389$ ?ENCORE CAPITAL GROUP, INC.Supplemental Financial InformationReconciliation 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 EndedJune 30, 2010 2009 GAAP net income, as reported$ 11,730$ 6,641Interest expense4,8803,958Provision for income taxes6,7494,166Depreciation and amortization752620Amount applied to principal on receivable portfolios64,90148,303Stock-based compensation expense1,446994Adjusted EBITDA$90,458$64,682Three Months EndedJune 30, 2010 2009 GAAP total operating expenses, as reported$ 72,782$ 63,494Stock-based compensation expense(1,446)(994)Bankruptcy servicing operating expenses(3,300)(3,454)Operating expenses, excluding stock-based compensation expense and bankruptcy servicing operating expenses$68,036$59,046As of June 30, 2010As of December 31, 2009GAAP total stockholders' equity, as reported$272,127$243,091Goodwill(15,985)(15,985)Identifiable intangible assets, net(943)(1,139)Tangible book value$255,199$225,967Diluted shares outstanding24,95824,484Tangible book value per share$10.23$9.23SOURCE Encore Capital Group, Inc.For further information: Paul Grinberg, +1-858-309-6904, firstname.lastname@example.org, or Ren Zamora, +1-858-560-3598, email@example.com, both of Encore Capital Group, Inc.