Press release from PR Newswire
Encore Capital Group Announces Third Quarter 2010 Financial Results
Tuesday, October 26, 2010
Encore Capital Group Announces Third Quarter 2010 Financial Results16:05 EDT Tuesday, October 26, 2010Net Income Reaches $12.3 Million; Gross Collections Increase 25% to $157.4 MillionSAN 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 WebcastThe 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 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 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) firstname.lastname@example.orgRen Zamora (858) email@example.comFINANCIAL TABLES FOLLOWENCORE CAPITAL GROUP, INC.Condensed Consolidated Statements of Financial Condition(In Thousands, Except Par Value Amounts)(Unaudited)September 30,2010December 31,2009 AssetsCash and cash equivalents$ 11,531$ 8,388Accounts receivable, net2,9833,134Investment in receivable portfolios, net580,154526,877Deferred court costs, net26,53025,957Property and equipment, net11,5999,427Prepaid income tax2,662?Other assets11,7844,252Goodwill15,98515,985Identifiable intangible assets, net8461,139 Total assets$ 664,074$ 595,159Liabilities and stockholders' equityLiabilities:Accounts payable and accrued liabilities$ 20,606$ 21,815Income taxes payable?2,681Deferred tax liabilities, net16,77216,980Deferred revenue4,2285,481Debt334,922303,075Other liabilities1,0332,036Total liabilities377,561352,068Commitments and contingenciesStockholders' equity:Convertible preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and outstanding??Common stock, $.01 par value, 50,000 shares authorized, 23,905 shares and 23,359 shares issued and outstanding as of September 30, 2010 and December 31, 2009, respectively239234Additional paid-in capital112,081104,261Accumulated earnings174,723139,842Accumulated other comprehensive loss(530)(1,246)Total stockholders' equity286,513243,091 Total liabilities and stockholders' equity$ 664,074$ 595,159ENCORE CAPITAL GROUP, INC.Condensed Consolidated Statements of Income(In Thousands, Except Per Share Amounts)(Unaudited)Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2010200920102009RevenueRevenue from receivable portfolios, net$ 93,822$ 76,448$ 268,574$ 222,688Servicing fees and other related revenue4,1453,93812,96212,179 Total revenue97,96780,386281,536234,867Operating expensesSalaries and employee benefits (excluding stock-based compensation expense)16,16614,41148,13543,130Stock-based compensation expense1,5491,2614,7563,335Cost of legal collections33,85126,09291,51984,665Other operating expenses9,5126,03427,65318,612Collection agency commissions5,3895,79517,09813,483General and administrative expenses6,9827,28021,28620,074Depreciation and amortization8166522,2411,895 Total operating expenses74,26561,525212,688185,194Income before other (expense) income and income taxes23,70218,86168,84849,673Other (expense) incomeInterest expense(4,928)(3,970)(14,346)(12,201)Gain on repurchase of convertible notes, net???3,268Other income (expense)14861250(11) Total other expense(4,780)(3,909)(14,096)(8,944)Income before income taxes18,92214,95254,75240,729Provision for income taxes(6,632)(5,948)(19,871)(16,087)Net income$ 12,290$ 9,004$ 34,881$ 24,642Weighted average shares outstanding:Basic23,94723,22523,79323,177Diluted25,15424,19925,01223,936Earnings per share:Basic$ 0.51$ 0.39$ 1.47$ 1.06Diluted$ 0.49$ 0.37$ 1.39$ 1.03ENCORE CAPITAL GROUP, INC.Condensed Consolidated Statements of Cash Flows(Unaudited, In Thousands)Nine Months EndedSeptember 30,20102009 Operating activities:Net income$ 34,881$ 24,642Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization2,2411,895Amortization of loan costs and debt discount3,2703,100Stock-based compensation expense4,7563,335Gain on repurchase of convertible notes, net?(3,268)Deferred income tax expense(208)437Excess tax benefit from stock-based payment arrangements(2,667)(47)Provision for allowances on receivable portfolios, net16,77714,323Changes in operating assets and liabilitiesOther assets(763)(1,623)Deferred court costs(573)625Prepaid income tax and income taxes payable(2,815)11,149Deferred revenue(1,253)472Accounts payable, accrued liabilities and other liabilities (2,900)840Net cash provided by operating activities50,74655,880Investing activities:Purchases of receivable portfolios, net of forward flow allocation(242,857)(205,378)Collections applied to investment in receivable portfolios, net169,896126,019Proceeds from put-backs of receivable portfolios2,9072,028Purchases 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 notes50,000?Proceeds from revolving credit facility111,64485,500Repayment 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 options524?Proceeds from exercise of stock options1,773123Excess tax benefit from stock-based payment arrangements2,66747Repayment of capital lease obligations(1,122)(232)Net cash provided by financing activities24,17421,676Net increase (decrease) in cash and cash equivalents3,143(3,401)Cash and cash equivalents, beginning of period8,38810,341Cash and cash equivalents, end of period$ 11,531$ 6,940Supplemental disclosures of cash flow information:Cash paid for interest$ 7,369$ 9,568Cash paid for income taxes$ 22,895$ 4,859Supplemental schedule of non-cash investing and financing activities:Fixed assets acquired through capital lease$ 2,398$ 224ENCORE 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 Ended September 30,2010 2009 GAAP net income, as reported$ 12,290$ 9,004Interest expense4,9283,970Provision for income taxes6,6325,948Depreciation and amortization816652Amount applied to principal on receivable portfolios63,50749,188Stock-based compensation expense1,5491,261Adjusted EBITDA$89,722$70,023Three Months EndedSeptember 30,20102009GAAP total operating expenses, as reported$ 74,265$ 61,525Stock-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$57,026As ofSeptember 30, 2010As ofDecember 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 outstanding25,15424,484 Tangible book value per share$10.72$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.