Press release from PR Newswire
Encore Capital Group Announces Fourth Quarter and Full Year 2010 Financial Results, Increased Revolving Credit Facility and Second Tranche of Seven-Year Notes
Monday, February 14, 2011
Encore Capital Group Announces Fourth Quarter and Full Year 2010 Financial Results, Increased Revolving Credit Facility and Second Tranche of Seven-Year Notes16:05 EST Monday, February 14, 2011Quarterly Net Income Increases 69% to $14.2 Million; Quarterly Gross Collections Increase 20% to $149.2 Million; Quarterly Purchases Increase 190% to $119.1 MillionSAN DIEGO, Feb. 14, 2011 /PRNewswire/ -- Encore Capital Group, Inc. (Nasdaq: ECPG), a leading consumer debt buying and recovery company, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2010.For the fourth quarter of 2010:Gross collections were $149.2 million, a 20% increase over the $124.5 million in the same period of the prior year.Investment in receivable portfolios was $119.1 million, to purchase $3.9 billion in face value of debt, compared to $41.0 million, to purchase $1.0 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 $33.5 million as of December 31, 2010. Total debt, consisting of the revolving credit facility, senior secured notes and capital lease obligations, was $385.3 million as of December 31, 2010. As discussed below, the Company increased its overall debt capacity. Including the additional commitments, available capacity under the revolving credit facility was $85.5 million as of February 14, 2011.Revenue from receivable portfolios, net was $95.7 million, a 24% increase over the $77.0 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, increased to approximately 68% from 66% in the same period of the prior year.Revenue from bankruptcy servicing was $4.0 million, compared to $4.5 million in the same period of the prior year.Total operating expenses were $71.6 million, an 11% increase over the $64.6 million in the same period of the prior year. Adjusted operating expense (operating expenses excluding stock-based compensation expense and bankruptcy servicing expenses) per dollar collected decreased to 44.4% compared to 48.5% 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 $83.9 million, a 27% increase over the $66.1 million in the same period of the prior year.Total interest expense was $5.0 million, compared to $4.0 million in the same period of the prior year.Net income was $14.2 million or $0.56 per fully diluted share, compared to net income of $8.4 million or $0.34 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 $11.35 as of December 31, 2010, a 23% increase over $9.23 as of December 31, 2009.For the full year of 2010:Gross collections were $604.6 million, a 24% increase over the $487.8 million in 2009.Investment in receivable portfolios was $362.0 million, to purchase $10.9 billion in face value of debt, compared to $256.6 million, to purchase $6.5 billion in face value of debt in 2009.Total revenue was $381.3 million, a 21% increase over the $316.4 million in 2009.Total operating expenses were $284.3 million, a 14% increase over the $249.8 million in 2009. Adjusted operating expense (operating expenses excluding stock-based compensation expense and bankruptcy servicing expenses) per dollar collected decreased to 43.7% compared to 47.6% in 2009.Adjusted EBITDA was $346.7 million, a 31% increase over the $264.6 million in 2009.Net income was $49.1 million, or $1.95 per fully diluted share, compared to net income of $33.0 million or $1.37 per fully diluted share in 2009.Brandon Black, President and Chief Executive Officer said, "Encore's fourth quarter performance represented an exceptional conclusion to a strong 2010. The quarter was highlighted by record-setting net income, as well as the deployment of capital in what was our best purchasing quarter since 2005. Encore's key differentiators were at work in the fourth quarter and full-year, and we believe they will continue to be key drivers in 2011."Additional Financial Information: Certain events affected the comparability of 2010 versus 2009 quarterly and annual 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 Annual Report on Form 10-K for the year ended December 31, 2010.For the full year of 2010, the Company recorded net portfolio allowances of $22.2 million, compared to $19.3 million in the prior year.Effective October 1, 2010 the Company revised its estimate of Deferred Court Costs based on additional data accumulated over the last four years. The impact of this change in estimate resulted in an increase in the Company's Deferred Court Cost asset of $2.8 million as of October 1, 2010, and resulted in a $2.8 million reduction in court cost expense, a $1.8 million increase in net income and a $0.07 increase in earnings per share for the fourth quarter and year ended December 31, 2010. On February 10, 2011, the Company reached an agreement in principal to settle a lawsuit on a national class basis, subject to entering into a definitive settlement agreement and obtaining court approval after notice to the class. The Company has accrued its portion of the settlement, which decreased net income by approximately $1.0 million and fully diluted earnings per share by $0.04 for the fourth quarter and year ended December 31, 2010. In 2009, the Company repurchased $28.5 million principal amount of its outstanding convertible notes, for a total price of $22.3 million, plus accrued interest. These repurchases resulted in a gain of $3.3 million, or an increase in fully diluted earnings per share of $0.08, for the year ended December 31, 2009.Increased Revolving Credit FacilitySeparately, the Company announced that on February 11, 2011, it obtained an additional $50.0 million in commitments from lenders and exercised half of its $100.0 million accordion feature. The Company thereby increased its revolving credit facility to $410.5 million from $360.5 million, leaving $50.0 million available under the accordion feature.Second Tranche of Seven-Year Senior Secured NotesThe Company also announced that on February 10, 2011, it issued a second tranche of seven-year senior secured notes to Prudential Capital Group in the amount of $25 million through a private placement transaction, as a follow-on to the $50 million transaction with Prudential in September 2010. The second tranche of notes were issued under the same terms and conditions as the first tranche and bear an annual interest rate of 7.375% compared to the 7.75% annual interest rate in the first tranche.Paul Grinberg, Executive Vice President and Chief Financial Officer said, "By increasing our revolving credit facility and securing additional financing in the form of a second tranche of seven-year notes, Encore has increased the average maturity of its debt at favorable rates, reduced its reliance on a single source of debt financing and strengthened its overall balance sheet. In addition, the duration of our cash-generating assets is now more closely matched with our long-term cash obligations, and we have the flexibility to grow our business at a cost of debt that is significantly lower than our return on assets or equity."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 fourth quarter and full year 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 adjusted operating expenses excluding stock-based compensation expense and bankruptcy servicing 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, adjusted operating expenses excluding stock-based compensation expense and bankruptcy servicing 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 adjusted operating expenses excluding stock-based compensation expense and bankruptcy servicing 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 major banks, credit unions, and utility providers and partner with individuals as they repay their obligations and work toward financial recovery. Our success and future growth are driven by our sophisticated and widespread use of analytics, our broad investments in data and behavioral science, the significant cost advantages provided by both our operations in India and our enterprise-wide, account-level cost database, and our demonstrated commitment to conduct business ethically and in ways that support our consumers' financial recovery.Headquartered in San Diego, we are a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and component stocks of both the Russell 2000 and Wilshire 4500. More information about the Company can be found at www.encorecapital.com.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 and growth, ability to expand and utilize financing under our credit facility and additional notes issuance. 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) firstname.lastname@example.orgRen Zamora (858) email@example.comFINANCIAL TABLES FOLLOWENCORE CAPITAL GROUP, INC.Consolidated Statements of Financial Condition(In Thousands, Except Par Value Amounts)December 31,2010 December 31,2009 AssetsCash and cash equivalents $ 10,905$ 8,388Accounts receivable, net 3,3313,134Investment in receivable portfolios, net 644,753526,877Deferred court costs 32,15825,957Property and equipment, net 13,6589,427Prepaid income tax 1,629?Other assets 13,3014,252Goodwill 15,98515,985Identifiable intangible assets, net 7481,139Total assets $ 736,468$ 595,159Liabilities and stockholders' equityLiabilities:Accounts payable and accrued liabilities $ 26,539$ 21,815Income taxes payable ?2,681Deferred tax liabilities, net 17,62616,980Deferred revenue 3,8575,481Debt 385,264303,075Other liabilities 4852,036Total liabilities 433,771352,068Commitments 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, 24,011 shares and 23,359 shares issued and outstanding as of December 31, 2010 and 2009, respectively240234Additional paid-in capital 113,412104,261Accumulated earnings 188,894139,842Accumulated other comprehensive income (loss) 151(1,246)Total stockholders' equity 302,697243,091Total liabilities and stockholders' equity $ 736,468$ 595,159ENCORE CAPITAL GROUP, INC.Consolidated Statements of Income(In Thousands, Except Per Share Amounts)(Unadited)Three Months Ended December 31, Year Ended December 31, 2010 2009 2010 2009 RevenueRevenue from receivable portfolios, net $ 95,720$ 77,044$ 364,294$ 299,732Servicing fees and other related revenue 4,0524,50817,01416,687Total revenue 99,77281,552381,308316,419Operating expensesSalaries and employee benefits (excluding stock-based compensation expense)17,63214,89565,76758,025Stock-based compensation expense 1,2541,0496,0104,384Cost of legal collections 29,56627,905121,085112,570Other operating expenses 8,7347,40136,38726,013Collection agency commissions 3,2875,79520,38519,278General and administrative expenses 10,1586,84631,44426,920Depreciation and amortization 9586973,1992,592Total operating expenses 71,58964,588284,277249,782Income before other (expense) income and income taxes28,18316,96497,03166,637Other (expense) incomeInterest expense (5,003)(3,959)(19,349)(16,160)Gain on repurchase of convertible notes, net ???3,268Other income (expense) 669316(2)Total other expense (4,937)(3,950)(19,033)(12,894)Income before income taxes 23,24613,01477,99853,743Provision for income taxes (9,075)(4,609)(28,946)(20,696)Net income $ 14,171$ 8,405$ 49,052$ 33,047Weighted average shares outstanding:Basic 24,09623,34123,89723,215Diluted 25,20624,48425,09124,082Earnings per share:Basic $ 0.59$ 0.36$ 2.05$ 1.42Diluted $ 0.56$ 0.34$ 1.95$ 1.37ENCORE CAPITAL GROUP, INC.Consolidated Statements of Cash Flows(In Thousands)Year Ended December 31, 2010 2009 Operating activities:Net Income$ 49,052$ 33,047Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 3,1992,592Amortization of loan costs and debt discount 3,6824,080Stock-based compensation expense 6,0104,384Gain on repurchase of convertible notes, net ?(3,268)Deferred income tax expense 6461,872Excess tax benefit from stock-based payment arrangements (3,249)(729)Provision for allowances on receivable portfolios, net 22,20919,310Changes in operating assets and liabilitiesOther assets (1,390)(1,668)Deferred court costs (6,201)2,379Prepaid income tax and income taxes payable (1,782)11,204Deferred revenue (1,624 )278Accounts payable, accrued liabilities and other liabilities 2,8992,635Net cash provided by operating activities 73,45176,116Investing activities:Purchases of receivable portfolios, net of forward flow allocation (361,957)(246,330)Collections applied to investment in receivable portfolios, net 217,891168,416Proceeds from put-backs of receivable portfolios 3,9813,375Purchases of property and equipment (2,722)(4,632)Net cash used in investing activities (142,807)(79,171)Financing activities:Payment of loan costs (6,248)?Proceeds from senior secured notes 50,000?Proceeds from revolving credit facility 125,50090,500Repayment of revolving credit facility (58,500)(68,500)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 2,1181,175Excess tax benefit from stock-based payment arrangements 3,249729Repayment of capital lease obligations (1,850)(540)Net cash provided by financing activities 71,8731,102Net increase (decrease) in cash 2,517(1,953)Cash and cash equivalents, beginning of period 8,38810,341Cash and cash equivalents, end of period $ 10,905$ 8,388Supplemental disclosures of cash flow information:Cash paid for interest $ 15,652$ 12,521Cash paid for income taxes $ 30,125$ 8,243Supplemental schedule of non-cash investing and financing activities:Fixed assets acquired through capital lease $ 4,317$ 516Allocation of forward flow asset to acquired receivable portfolios $ ?$ 10,302ENCORE CAPITAL GROUP, INC.Supplemental Financial InformationReconciliation of Adjusted EBITDA to GAAP Net Income, Adjusted Operating Expenses Excluding Stock-based Compensation Expense and Bankruptcy Servicing 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 EndedDecember 31,Year EndedDecember 31,2010200920102009GAAP net income, as reported $14,171$8,405$49,052$33,047Interest expense5,0033,95919,34916,160Provision for income taxes9,0754,60928,94620,696Depreciation and amortization9586973,1992,592Amount applied to principal on receivable portfolios53,42747,384240,100187,726Stock-based compensation expense1,2541,0496,0104,384Adjusted EBITDA$83,888$66,103$346,656$264,605Three Months EndedDecember 31,Year EndedDecember 31,2010200920102009GAAP total operating expenses, as reported$71,589$64,588$284,277$249,782Stock-based compensation expense(1,254)(1,049)(6,010)(4,384)Bankruptcy servicing expenses(4,055)(3,140)(14,328)(13,218)Adjusted operating expenses excluding stock-based compensation expense and bankruptcy servicing expenses$66,280$60,399$263,939$232,180As of December 31, 2010As of December 31, 2009 GAAP total stockholders' equity, as reported $302,697$243,091 Goodwill(15,985)(15,985) Identifiable intangible assets, net (748)(1,139) Tangible book value$285,964$225,967 Diluted shares outstanding25,20624,484 Tangible book value per share$11.35$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.