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Press release from PR Newswire

Encore Capital Group Announces Fourth Quarter and Full Year 2012 Financial Results

Wednesday, February 13, 2013

Encore Capital Group Announces Fourth Quarter and Full Year 2012 Financial Results16:05 EST Wednesday, February 13, 2013Quarterly Net Income Increased 17% to $20.2 million; Quarterly Gross Collections Increased 24% to $230.5 millionSAN DIEGO, Feb. 13, 2013 /PRNewswire/ -- Encore Capital Group, Inc. (Nasdaq: ECPG), through its subsidiaries (the "Company"), a leading provider of debt management and recovery solutions for consumers and property owners across a broad range of assets, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2012."2012 was an exceptional year for Encore," said Brandon Black, the Company's President and Chief Executive Officer. "We delivered record earnings, record collections and record operating cash flow, even as we made investments to strengthen our core business and expand our services for financially stressed consumers through the acquisition of Propel Financial Services. We believe that these strategic investments, combined with our analytic strength and our disciplined approach to deploying capital, position us well in an increasingly complex business and regulatory environment."For the Fourth Quarter of 2012:Gross collections from the portfolio purchasing and recovery business were $230.5 million, a 24% increase over the $185.9 million in the same period of the prior year. Investment in receivable portfolios in the portfolio purchasing and recovery business was $153.6 million, to purchase $8.5 billion in face value of debt, compared to $136.7 million, to purchase $3.8 billion in face value of debt in the same period of the prior year.  Available capacity under the Encore Capital Group revolving credit facility, subject to borrowing base and applicable debt covenants, was $187.0 million as of December 31, 2012.  Total debt, consisting of the Encore revolving credit and term loan facility, the Propel facility, the senior secured notes, and capital lease obligations, was $706.0 million as of December 31, 2012, compared to $389.0 million as of December 31, 2011. Revenue from receivable portfolios in the portfolio purchasing and recovery business, net of allowance adjustments, was $139.6 million, a 20% increase over the $116.5 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, decreased to approximately 59% from 64% in the same period of the prior year. Total operating expenses were $103.9 million, a 24% increase over the $83.6 million in the same period of the prior year.  Adjusted operating expense per dollar collected for the portfolio purchasing and recovery business decreased to 43.2% compared to 44.1% 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 $134.7 million, a 28% increase over the $105.0 million in the same period of the prior year. Total interest expense for the portfolio purchasing and recovery segment increased to $6.5 million, as compared to $5.0 million in the same period of the prior year. Income from continuing operations was $20.2 million, or $0.79 per fully diluted share, compared to income from continuing operations of $17.2 million, or $0.67 per fully diluted share in the same period of the prior year. For the full year of 2012: Gross collections were $948.1 million, a 25% increase over the $761.2 million in 2011. Investment in receivable portfolios in the portfolio purchasing and recovery business was $562.3 million, to purchase $18.5 billion in face value of debt, compared to $386.9 million, to purchase $11.7 billion in face value of debt in 2011. Revenue from receivable portfolios in the portfolio purchasing and recovery business, net of allowance adjustments, was $545.4 million, a 22% increase over the $448.7 million in 2011. Total operating expenses were $401.7 million, a 22% increase over the $328.6 million 2011. Adjusted operating expenses for the portfolio purchasing and recovery business per dollar collected decreased to 40.4% compared to 42.2% in 2011. Adjusted EBITDA was $577.4 million, a 30% increase over the $443.9 million in 2011. Income from continuing operations was $78.6 million or $3.04 per fully diluted share, compared to income from continuing operations of $60.6 million or $2.36 per fully diluted share in 2011. Total stockholders' equity per share, excluding the effects of discontinued operations, was $16.06 at December 31, 2012, an 11% increase over $14.45 at December 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 fourth quarter and full year 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, please dial (877) 670-9781 or (408) 940-3818. The Conference ID is 90236787. To access the live webcast via the Internet, log on at the Investors page of the Company's website at www.encorecapital.com. Non-GAAP Financial MeasuresThe Company has included information concerning non-GAAP financial measures, including adjusted earnings per share, because management believes that investors regularly rely on non-GAAP adjusted earnings and adjusted earnings per share, to assess operating performance, in order to highlight trends in the Company's business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. The Company has also 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. Additionally, the Company has included information related to adjusted operating expenses for the portfolio purchasing and recovery business, in order to facilitate a comparison of approximate cash costs to cash collections for the portfolio purchasing and recovery business in the periods presented.  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 the Company's operating performance. Further, these non-GAAP financial measures, as presented by the Company, may not be comparable to similarly titled measures reported by other companies. The Company has included a reconciliation of adjusted earnings per share to reported earnings under GAAP, a reconciliation of adjusted EBITDA to reported earnings under GAAP, a reconciliation of adjusted operating expenses for the portfolio purchasing and recovery business to the GAAP measure total operating expenses, and a reconciliation of adjusted stockholders' equity per share to reported stockholders' equity under GAAP in the attached financial tables. About Encore Capital Group, Inc.Encore Capital Group is a leading provider of debt management and recovery solutions for consumers and property owners across a broad range of assets. Through its subsidiaries, the Company purchases portfolios of consumer receivables from major banks, credit unions, and utility providers, and partners with individuals as they repay their obligations and work toward financial recovery. Through its Propel Financial Services, LLC subsidiary, the Company assists property owners who are delinquent on their property taxes by structuring affordable monthly payment plans. Headquartered in San Diego, Encore Capital Group is 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. The Company's website and the information contained therein, is not incorporated into and is not a part of this press release.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 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.com FINANCIAL TABLES FOLLOW   ENCORE CAPITAL GROUP, INC.Consolidated Statements of Financial Condition (In Thousands, Except Par Value Amounts) December 31,2012December 31,2011AssetsCash and cash equivalents$           17,510$            8,047Investment in receivable portfolios, net873,119716,454Deferred court costs, net35,40738,506Property tax payment agreements receivable, net135,100?Interest receivable4,042?Property and equipment, net23,22317,796Other assets27,00615,233Goodwill55,44615,985Identifiable intangible assets, net487462Total assets$     1,171,340$        812,483Liabilities and stockholders' equityLiabilities:Accounts payable and accrued liabilities$           45,450$          29,628Income tax payable3,080?Deferred tax liabilities, net8,23615,709Debt706,036388,950Other liabilities2,7226,661Total liabilities765,524440,948Commitments and contingenciesStockholders' equity:Convertible preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and outstanding??Common stock, $.01 par value, 50,000 shares authorized, 23,191 shares and 24,520 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively232245Additional paid-in capital88,029123,406Accumulated earnings319,329249,852Accumulated other comprehensive loss(1,774)(1,968)Total stockholders' equity405,816371,535Total liabilities and stockholders' equity$     1,171,340$        812,483   ENCORE CAPITAL GROUP, INCConsolidated Statements of Comprehensive Income(In Thousands, Except Per Share Amounts)(Unaudited)Three Months EndedDecember 31,Year EndedDecember 31,2012201120122011RevenuesRevenue from receivable portfolios, net$    139,594$    116,452$    545,412$    448,714Tax lien transferInterest income5,315?13,882?Interest expense(1,297)?(3,422)?Net interest income4,018?10,460?Total revenues143,612116,452555,872448,714Operating expensesSalaries and employee benefits28,19320,347101,08477,805Cost of legal collections45,50039,686168,703157,050Other operating expenses10,0858,76448,93935,708Collection agency commissions2,9803,38815,33214,162General and administrative expenses15,46710,28961,79839,760Depreciation and amortization1,6471,1655,8404,081Total operating expenses103,87283,639401,696328,566Income from operations39,74032,813154,176120,148Other (expense) incomeInterest expense(6,540)(4,979)(25,564)(21,116)Other income (expense)328(181)1,713(363)Total other expense(6,212)(5,160)(23,851)(21,479)Income from continuing operations before income taxes33,52827,653130,32598,669Provision for income taxes(13,361)(10,418)(51,754)(38,076)Income from continuing operations20,16717,23578,57160,593(Loss) income from discontinued operations, net of tax?(101)(9,094)365Net income$      20,167$      17,134$      69,477$      60,958Weighted average shares outstanding:Basic24,63924,68924,85524,572Diluted25,56525,65725,83625,690Basic earnings (loss) per share from:Continuing operations$           0.82$           0.70$           3.16$           2.47Discontinued operations$           0.00$         (0.01)$         (0.36)$           0.01Net basic earnings per share$           0.82$           0.69$           2.80$           2.48Diluted earnings (loss) per share from:Continuing operations$           0.79$           0.67$           3.04$           2.36Discontinued operations$           0.00$           0.00$         (0.35)$           0.01Net diluted earnings per share$           0.79$           0.67$           2.69$           2.37Other comprehensive (loss) gain:Unrealized (loss) gain on derivative instruments$          (791)$          (870)$            414$       (2,964)Income tax benefit (provision) related to unrealized (loss) gain on derivative instruments25226(220)845Other comprehensive (loss) gain, net of tax(539)(844)194(2,119)Comprehensive income$      19,628$      16,290$      69,671$      58,839   ENCORE CAPITAL GROUP, INCConsolidated Statements of Cash Flows(In Thousands)Year Ended December 31,201220112010Operating activities:Net income$     69,477$     60,958$     49,052Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization5,8404,6613,199Impairment charge for goodwill and identifiable intangible assets10,400??Amortization of loan costs and premium on property tax payment agreements receivable3,2681,8333,682Stock-based compensation expense8,7947,7096,010Income tax provision (less than) in excess of income tax payments(7,474)(1,917)646Excess tax benefit from stock-based payment arrangements(4,123)(5,101)(3,249)Loss on sale of discontinued operations2,416??(Reversal) provision for allowances on receivable portfolios, net(4,221)10,82322,209Changes in operating assets and liabilitiesDeferred court costs3,099(6,348)(6,201)Other assets(206)2,179(1,390)Prepaid income tax and income taxes payable7,0606,495(1,782)Accounts payable, accrued liabilities and other liabilities4,1903,2873,299Net cash provided by operating activities98,52084,57975,475Investing activities:Cash paid for acquisition, net of cash acquired(186,731)??Purchases of receivable portfolios(562,335)(386,850)(361,957)Collections applied to investment in receivable portfolios, net406,815301,474217,891Proceeds from put-backs of receivable portfolios3,0762,8523,981Originations of property tax payment agreements receivable(34,036)??Collections applied to property tax payment agreements receivable, net35,706??Purchases of property and equipment(6,265)(5,564)(2,722)Net cash used in investing activities(343,770)(88,088)(142,807)Financing activities:Payment of loan costs(12,359)(840)(6,248)Proceeds from senior secured notes?25,00050,000Repayment of senior secured notes(2,500)??Proceeds from revolving credit facility and term loan facility508,399121,000125,500Repayment of revolving credit facility and term loan facility(289,673)(143,000)(58,500)Proceeds from issuance of convertible notes115,000??Repayment of convertible notes??(42,920)Purchases of convertible hedge instruments(22,669)??Proceeds from sale of warrants11,028??Repurchase of common stock(49,270)??Proceeds from net settlement of certain call options??524Proceeds from exercise of stock options1,8471,2632,118Taxes paid related to net share settlement of equity awards(2,969)(3,891)(2,024)Excess tax benefit from stock-based payment arrangements4,1235,1013,249Repayment of capital lease obligations(6,244)(3,982(1,850)Net cash provided by financing activities254,71365169,849Net increase (decrease) in cash and cash equivalents9,463(2,858)2,517Cash and cash equivalents, beginning of period8,04710,9058,388Cash and cash equivalents, end of period$     17,510$       8,047$     10,905Supplemental disclosures of cash flow information:Cash paid for interest$     25,218$     19,038$     15,652Cash paid for income taxes46,29732,12530,125Supplemental schedule of non-cash investing and financing activities:Fixed assets acquired through capital lease$       5,287$       2,949$       4,317  ENCORE CAPITAL GROUP, INC.Supplemental Financial InformationReconciliation of Adjusted Earnings From Continuing Operations to GAAP Net Income From Continuing Operations, Adjusted EBITDA to GAAP Net Income, Adjusted Operating Expenses For The Portfolio Purchasing And Recovery Business to GAAP Total Operating Expenses, and Adjusted Stockholders' Equity Per Share to GAAP Total Stockholders' Equity (In Thousands, Except Per Share amounts) (Unaudited)Three Months Ended December 31, Year Ended December 31,2012201120122011$PerDilutedShare$PerDilutedShare$PerDilutedShare$PerDilutedShareGAAP net income from continuing operations, as reported$     20,167$       0.79$  17,235$       0.67$  78,571$       3.04$  60,593$       2.36Adjustment:Convertible notes non-cash interest and issuance cost amortization, net of tax191$       0.01??191$       0.01??Adjusted earnings from continuing operations$     20,358$       0.80$  17,235$       0.67$  78,762$       3.05$  60,593$       2.36  Three Months EndedDecember 31,Year EndedDecember 31,2012201120122011GAAP net income, as reported$ 20,167$17,134$69,477$ 60,958Adjustments:Loss (income) from discontinued operations, net of tax?1019,094(365)Interest expense6,5404,97925,56421,116Provision for income taxes13,36110,41851,75438,076Depreciation and amortization1,6471,1655,8404,081Amount applied to principal on receivable portfolios90,89569,462402,594312,297Stock-based compensation expense2,0841,7298,7947,709Acquisition related expenses??4,263?Adjusted EBITDA$134,694$104,988$577,380$443,872  Three Months EndedDecember 31,Year EndedDecember 31,2012201120122011GAAP total operating expenses, as reported$ 103,872$ 83,639$ 401,696$328,566Adjustments:Stock-based compensation expense(2,084)(1,729)(8,794)(7,709)Tax lien transfer segment operating expenses(2,113)?(5,681)?Acquisition related expenses??(4,263)?Adjusted operating expenses for the portfolio purchasing and recovery business$99,675$81,910$382,958$320,857  December 31,2012December 31,2011GAAP stockholders' equity, as reported$              405,816$ 371,535Effect of discontinued operations9,094(365)Adjusted stockholders' equity$414,910$371,170Diluted shares outstanding25,83625,690Adjusted stockholders' equity per share$16.06$14.45  SOURCE Encore Capital Group, Inc.