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Press release from PR Newswire

Encore Capital Group Announces Third Quarter 2011 Financial Results

Wednesday, October 26, 2011

Encore Capital Group Announces Third Quarter 2011 Financial Results16:05 EDT Wednesday, October 26, 2011Quarterly Net Income Increases 25% to $15.4 Million, or $0.60 per Fully Diluted Share; Quarterly Gross Collections Increase 20% to $189.1 MillionSAN DIEGO, Oct. 26, 2011 /PRNewswire/ -- Encore Capital Group, Inc. (Nasdaq: ECPG), a leader in consumer debt buying and recovery, today reported consolidated financial results for the third quarter ended September 30, 2011."In the third quarter, Encore Capital's disciplined approach to portfolio underwriting and management generated strong results in terms of net income, gross collections, and cash flow," said Brandon Black, Encore's President and Chief Executive Officer.  "We also continued to invest in areas that will provide the Company with long-term strategic advantages.  These areas include the growth of our internal legal channel, and preparing the foundation for a near-shore call center in Costa Rica in order to service our growing number of Spanish-speaking consumers."For the third quarter of 2011:Gross collections were $189.1 million, a 20% increase over the $157.4 million in the same period of the prior year.Investment in receivable portfolios was $65.7 million, to purchase $2.0 billion in face value of debt, compared to $77.9 million, to purchase $2.6 billion in face value of debt in the same period of the prior year. Available capacity under the Company's revolving credit facility, subject to borrowing base and applicable debt covenants, was $149.5 million as of September 30, 2011. Total debt, consisting of the revolving credit facility, senior secured notes and capital lease obligations, was $344.2 million as of September 30, 2011, a decrease of 11% from $385.3 million as of December 31, 2010.Revenue from receivable portfolios, net was $115.8 million, a 24% increase over the $93.8 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, was 62%, compared to 64% in the same period of the prior year.Revenue from bankruptcy servicing was $4.7 million, a 14% increase over the $4.1 million in the same period of the prior year.Total operating expenses were $89.8 million, a 21% increase over the $74.3 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 43.8% compared to 43.9% 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 $107.2 million, a 20% increase over the $89.7 million in the same period of the prior year.Total interest expense was $5.2 million, compared to $4.9 million in the same period of the prior year.Net income was $15.4 million or $0.60 per fully diluted share, compared to net income of $12.3 million or $0.49 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 $13.18 as of September 30, 2011, a 16% increase over $11.35 as of December 31, 2010.Additional Financial Information:As outlined below, certain events affected the comparability of 2011 versus 2010 quarterly results. For a more detailed comparison of 2011 versus 2010 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, 2011.In the third quarter of 2011, the Company recorded net portfolio allowances of $1.6 million, compared to $6.1 million in the same period of the prior year. In the third quarter of 2011, the Company recorded expenses relating to our internal legal channel and near-shore initiatives of $1.1 million.In the third quarter of 2011, the Company incurred $3.7 million of expenses associated with governmental investigations and inquiries, litigation and settlements.  In the third quarter of 2010, the Company incurred $1.7 million related to such expenses.In the third quarter of 2011, the Company recorded a tax provision of $9.9 million, compared to $6.6 million in the same period of the prior year.  The third quarter's effective tax rate was 39.1%, compared to 35.0% in the same period of the prior year.  The prior year's rate was lower largely due to state and federal tax refunds, true-ups of state and federal tax accounts, and the availability of the tax holiday in India, which expired on March 31, 2011.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 event via a listen-only telephone conference call line or the Internet. To access the live telephone conference call line, please dial (877) 312-8796. To access the webcast via the Internet, please visit the Upcoming Events section of the Investor Relations area of the Company's website at www.encorecapital.com.  For those who cannot listen to the live broadcast, a telephone replay will be available for seven days by dialing (404) 537-3406 and using conference ID 22126765. A replay of the conference call will also be available shortly after the call on the Company's website in the Past Events section of the Investor Relations area of the Company's website at www.encorecapital.com.  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 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. Forward Looking StatementsThe 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 litigation, 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) 309-6904paul.grinberg@encorecapital.comAdam Sragovicz (858) 309-9509adam.sragovicz@encorecapital.comFINANCIAL TABLES FOLLOWENCORE CAPITAL GROUP, INC.Condensed Consolidated Statements of Financial Condition(In Thousands, Except Par Value Amounts)(Unaudited)September 30,2011December 31,2010AssetsCash and cash equivalents                                                                    $  10,672$  10,905Accounts receivable, net                                                                     3,7033,331Investment in receivable portfolios, net                                                           649,682644,753Deferred court costs, net                                                                     36,12632,158Property and equipment, net                                                                   16,41213,658Prepaid income tax                                                                           3,0901,629Other assets                                                                               11,23613,301Goodwill                                                                                   15,98515,985Identifiable intangible assets, net                                                                534748Total assets                                                                         $  747,440$  736,468Liabilities and stockholders' equityLiabilities:Accounts payable and accrued liabilities                                                    $  27,924$  26,539Deferred tax liabilities, net                                                                16,15417,626Debt                                                                                 344,196385,264Other liabilities                                                                         5,2454,342Total liabilities                                                                     393,519433,771Commitments 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, 24,472 shares and 24,011 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively245240Additional paid-in capital                                                                 122,082113,412Accumulated earnings                                                                   232,718188,894Accumulated other comprehensive (loss) income                                             (1,124)151Total stockholders' equity                                                           353,921302,697Total liabilities and stockholders' equity                                           $  747,440$  736,468ENCORE CAPITAL GROUP, INC.Condensed Consolidated Statements of Income(In Thousands, Except Per Share Amounts)(Unaudited)Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2011201020112010RevenueRevenue from receivable portfolios, net                              $  115,843$  93,822$  332,262$  268,574Servicing fees and other related revenue                             4,7204,14514,43412,962               Total revenue                                         120,56397,967346,696281,536Operating expensesSalaries and employee benefits (excluding stock-based compensation expense)20,73016,16659,98248,135Stock-based compensation expense                                 2,4051,5495,9804,756Cost of legal collections                                           40,16933,851117,36491,519Other operating expenses                                         10,8709,51230,15727,653Collection agency commissions                                     3,2645,38910,77417,098General and administrative expenses                                11,1726,98230,96421,286Depreciation and amortization                                      1,1948163,3522,241              Total operating expenses                               89,80474,265258,573212,688Income from operations                                             30,75923,70288,12368,848Other (expense) incomeInterest expense                                                 (5,175)(4,928)(16,137)(14,346)Other (expense) income                                           (346)148(207)250       Total other expense                                           (5,521)(4,780)(16,344)(14,096)Income before income taxes                                         25,23818,92271,77954,752Provision for income taxes                                         (9,868)(6,632)(27,955)(19,871)Net income                                                         $  15,370$  12,290$  43,824$  34,881Weighted average shares outstanding:Basic                                                         24,63823,94724,49323,793Diluted                                                         25,60425,15425,63625,012Earnings per share:Basic                                                         $  0.62$  0.51$  1.79$  1.47Diluted                                                         $  0.60$  0.49$  1.71$  1.39ENCORE CAPITAL GROUP, INC.Condensed Consolidated Statements of Cash Flows(Unaudited, In Thousands)Nine  Months Ended September 30, 2011 2010 Operating activities:Net income                                                                                 $  43,824$  34,881Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization                                                             3,3522,241Amortization of loan costs and debt discount                                                 1,3673,270Stock-based compensation expense                                                        5,9804,756Deferred income tax benefit                                                               (1,472)(208)Excess tax benefit from stock-based payment arrangements                                     (4,904)(2,667)Provision for allowances on receivable portfolios, net                                           8,10916,777Changes in operating assets and liabilitiesOther assets                                                                           1,508(763)Deferred court costs                                                                     (3,968)(573)Prepaid income tax and income taxes payable                                                 3,423(2,815)Accounts payable, accrued liabilities and other liabilities                                          1,012(2,397)          Net cash provided by operating activities                                               58,23152,502Investing activities:Purchases of receivable portfolios                                                         (250,107)(242,857)Collections applied to investment in receivable portfolios, net                                     234,726169,896Proceeds from put-backs of receivable portfolios                                              2,3432,907Purchases of property and equipment                                                       (3,458)(1,723)         Net cash used in investing activities                                                    (16,496)(71,777)Financing activities:Payment of loan costs                                                                   (835)(6,248)Proceeds from senior secured notes                                                       25,00050,000Proceeds from revolving credit facility                                                       61,000111,644Repayment of revolving credit facility                                                       (127,000)(92,144)Repayment of convertible notes                                                           ?(42,920)Proceeds from net settlement of certain call options                                            ?524Proceeds from exercise of stock options                                                     1,2871,773Taxes paid related to net share settlement of equity awards                                     (3,476)(1,756)Excess tax benefit from stock-based payment arrangements                                     4,9042,667Repayment of capital lease obligations                                                       (2,848)(1,122)                  Net cash (used in) provided by financing activities                                         (41,968)22,418Net (decrease) increase in cash and cash equivalents                                               (233)3,143Cash and cash equivalents, beginning of period                                                     10,9058,388Cash and cash equivalents, end of period                                                         $  10,672$  11,531Supplemental disclosures of cash flow information:Cash paid for interest                                                                    $  14,591$  7,369Cash paid for income taxes                                                               $  24,860$  22,895Supplemental schedule of non-cash investing and financing activities:Fixed assets acquired through capital lease                                                  $  2,434$  2,398ENCORE 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 Ended September 30, 2011 2010 GAAP net income, as reported                                                         $  15,370$  12,290Interest expense                                                                       5,1754,928Provision for income taxes                                                               9,8686,632Depreciation and amortization                                                             1,194816Amount applied to principal on receivable portfolios                                           73,18763,507Stock-based compensation expense                                                       2,4051,549Adjusted EBITDA                                                                     $  107,199$  89,722Three Months Ended September 30, 2011 2010 GAAP total operating expenses, as reported                                           $  89,804$  74,265Stock-based compensation expense                                                       (2,405)(1,549)Bankruptcy servicing expenses                                                           (4,622)(3,662)Adjusted operating expenses excluding stock-based compensation expense and bankruptcy servicing expenses$  82,777$  69,054As of September 30, 2011As of December 31, 2010GAAP total stockholders' equity, as reported               $  353,921$  302,697Goodwill                                                 (15,985)(15,985)Identifiable intangible assets, net                             (534)(748)Tangible book value                                       $  337,402$  285,964Diluted shares outstanding                                  25,60425,206Tangible book value per share                           $  13.18$  11.35SOURCE Encore Capital Group, Inc.