Encore Capital Group Announces First Quarter 2016 Financial Results


  • GAAP EPS from continuing operations increases 11% to $1.12
  • Non-GAAP Economic EPS from continuing operations increases 13% to $1.31

SAN DIEGO, May 10, 2016 (GLOBE NEWSWIRE) -- Encore Capital Group, Inc. (NASDAQ:ECPG), an international specialty finance company providing debt recovery solutions for consumers and property owners across a broad range of assets, today reported consolidated financial results for the first quarter ended March 31, 2016.

“Encore had a solid purchasing quarter, deploying $257 million globally, including $142 million in the United States. Returns in our U.S. core business are higher than last year, and year-to-date domestic purchases and commitments now total nearly $330 million,” said Kenneth A. Vecchione, President and Chief Executive Officer.

“For the quarter, our ROIC and adjusted operating income rose as Economic EPS grew 13%, to $1.31 per share. Collections and revenue growth helped move earnings higher, while strategic cost management and favorable tax settlements also provided benefit.

“In addition, we completed the divestiture of Propel Financial Services, allowing us to deploy capital in opportunities with higher returns. This transaction also reduced our debt and increased our liquidity.”

Financial Highlights for the First Quarter of 2016:

  • Estimated Remaining Collections (ERC) grew 12% to $5.7 billion, compared to $5.1 billion at March 31, 2015.
  • Gross collections grew 5% to $448 million, compared to $425 million in the same period of the prior year.
  • Investment in receivable portfolios was $257 million, compared to $125 million in the same period of the prior year.
  • Total revenues increased 4% to $289 million, compared to $278 million in the same period of the prior year.
  • Total operating expenses increased 5% to $206 million, compared to $195 million in the same period of the prior year. Adjusted operating expenses increased 3% to $169 million, compared to $165 million in the same period of the prior year. Adjusted operating expenses per dollar collected for the portfolio purchasing and recovery business decreased to 37.7%, compared to 38.8% in the same period of the prior year.
  • Adjusted EBITDA increased 9% to $287 million, compared to $263 million in the same period of the prior year.
  • Total interest expense increased to $50.7 million, as compared to $42.3 million in the same period of the prior year, reflecting the financing of recent acquisitions and portfolio purchases in Europe.
  • GAAP income from continuing operations attributable to Encore was $28.9 million, or $1.12 per fully diluted share, as compared to $27.5 million, or $1.01 per fully diluted share in the same period of the prior year.
  • Adjusted income from continuing operations attributable to Encore increased 11% to $33.9 million, compared to $30.6 million in the same period of the prior year.
  • Adjusted income from continuing operations attributable to Encore per share (also referred to as Economic EPS) grew 13% to $1.31, compared to $1.16 in the same period of the prior year. In the first quarter of 2016, Economic EPS was not adjusted for shares associated with Encore’s convertible notes. In calculating Economic EPS for the first quarter of 2015, 0.9 million shares associated with convertible notes that will not be issued but are reflected in the fully diluted share count were excluded for accounting purposes.
  • Available capacity under Encore’s revolving credit facility, subject to borrowing base and applicable debt covenants, was $228 million as of March 31, 2016, and total debt was $2.9 billion.

Conference Call and Webcast

Members of the public are invited to access the live webcast via the Internet by logging on at the Investor Relations page of Encore's website at www.encorecapital.com. To access the live, listen-only telephone conference portion, please dial (855) 541-0982 or (704) 288-0606.

For those who cannot listen to the live broadcast, a telephonic replay will be available for seven days by dialing (800) 585-8367 or (404) 537-3406 and entering the conference number 99266441. A replay of the webcast will also be available shortly after the call on the Company's website.

Non-GAAP Financial Measures

This news release includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company has included adjusted income attributable to Encore and adjusted income attributable to Encore per share (also referred to as economic EPS when adjusted for certain shares associated with our convertible notes that will not be issued but are reflected in the fully diluted share count for accounting purposes) because management uses this measure 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 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 revolving credit facility, 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 in order to facilitate a comparison of approximate cash costs to cash collections for the portfolio purchasing and recovery business in the periods presented. Adjusted income attributable to Encore, adjusted income attributable to Encore per share/economic EPS, adjusted EBITDA, and adjusted operating expenses have not been prepared in accordance with GAAP. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income, net income per share, 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 attached to this news release a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

About Encore Capital Group, Inc.

Encore Capital Group is an international specialty finance company that provides debt recovery solutions for consumers and property owners across a broad range of assets. Through its subsidiaries, Encore purchases portfolios of consumer receivables from major banks, credit unions and utility providers.

Encore partners with individuals as they repay their obligations, helping them on the road to financial recovery and ultimately improving their economic well-being. Encore is the first and only company of its kind to operate with a Consumer Bill of Rights that provides industry-leading commitments to consumers. Headquartered in San Diego, the company is a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock of the Russell 2000, the S&P Small Cap 600 and the Wilshire 4500. More information about Encore can be found at http://www.encorecapital.com. More information about the Company’s Cabot Credit Management subsidiary can be found at http://www.cabotcm.com. Information found on the Company’s website or Cabot’s website is not incorporated by reference.

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 “will,” “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 and 10-Q, as they may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements.

FINANCIAL TABLES FOLLOW

 

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)
 
 March 31,
 2016
 December 31,
 2015
Assets   
Cash and cash equivalents$144,613  $123,993 
Investment in receivable portfolios, net2,486,978  2,440,669 
Property and equipment, net68,162  72,546 
Deferred court costs, net75,829  75,239 
Other assets157,533  148,762 
Goodwill890,504  924,847 
Assets associated with discontinued operations  388,763 
Total assets$3,823,619  $4,174,819 
Liabilities and equity   
Liabilities:   
Accounts payable and accrued liabilities$238,203  $290,608 
Debt2,893,434  2,944,063 
Other liabilities27,975  59,226 
Liabilities associated with discontinued operations  232,434 
Total liabilities3,159,612  3,526,331 
Commitments and contingencies   
Redeemable noncontrolling interest39,948  38,624 
Redeemable equity component of convertible senior notes5,359  6,126 
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, 25,508 shares and 25,288 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively255  253 
Additional paid-in capital109,228  110,533 
Accumulated earnings569,183  543,489 
Accumulated other comprehensive loss(68,360) (57,822)
Total Encore Capital Group, Inc. stockholders’ equity610,306  596,453 
Noncontrolling interest8,394  7,285 
Total equity618,700  603,738 
Total liabilities, redeemable equity and equity$3,823,619  $4,174,819 
        

The following table includes assets that can only be used to settle the liabilities of the Company’s consolidated variable interest entities (“VIEs”) and the creditors of the VIEs have no recourse to the Company. These assets and liabilities are included in the consolidated statements of financial condition above.

 March 31,
 2016
 December 31,
 2015
Assets   
Cash and cash equivalents$62,539  $50,483 
Investment in receivable portfolios, net1,217,625  1,197,513 
Property and equipment, net18,145  19,767 
Deferred court costs, net35,782  33,296 
Other assets46,804  31,679 
Goodwill680,727  706,812 
Assets associated with discontinued operations  92,985 
Liabilities   
Accounts payable and accrued liabilities$99,010  $142,375 
Debt1,739,579  1,665,009 
Other liabilities687  839 
Liabilities associated with discontinued operations  58,923 
      

 

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
 Three Months Ended
 March 31,
 2016 2015
Revenues   
Revenue from receivable portfolios, net$270,094  $264,110 
Other revenues18,923  13,672 
Total revenues289,017  277,782 
Operating expenses   
Salaries and employee benefits69,642  65,552 
Cost of legal collections54,308  54,998 
Other operating expenses26,343  24,326 
Collection agency commissions10,120  10,685 
General and administrative expenses35,239  31,197 
Depreciation and amortization9,861  8,137 
Total operating expenses205,513  194,895 
Income from operations83,504  82,887 
Other (expense) income   
Interest expense(50,691) (42,303)
Other income7,124  2,117 
Total other expense(43,567) (40,186)
Income before income taxes39,937  42,701 
Provision for income taxes(10,148) (14,614)
Income from continuing operations29,789  28,087 
(Loss) income from discontinued operations, net of tax(3,182) 1,880 
Net income26,607  29,967 
Net income attributable to noncontrolling interest(913) (542)
Net income attributable to Encore Capital Group, Inc. stockholders$25,694  $29,425 
Amounts attributable to Encore Capital Group, Inc.:   
Income from continuing operations$28,876  $27,545 
(Loss) income from discontinued operations, net of tax(3,182) 1,880 
Net income$25,694  $29,425 
    
Earnings (loss) per share attributable to Encore Capital Group, Inc.:   
    
Basic earnings (loss) per share from:   
Continuing operations$1.13  $1.06 
Discontinued operations$(0.12) $0.07 
Basic$1.01  $1.13 
Diluted earnings (loss) per share from:   
Continuing operations$1.12  $1.01 
Discontinued operations$(0.13) $0.07 
Diluted$0.99  $1.08 
    
Weighted average shares outstanding:   
Basic25,550  26,072 
Diluted25,868  27,315 
      

 

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
 
 Three Months Ended
 March 31,
 2016 2015
Operating activities:   
Net income$26,607  $29,967 
Adjustments to reconcile net income to net cash provided by operating activities:   
Loss (income) from discontinued operations, net of income taxes1,352  (1,880)
Depreciation and amortization9,861  8,137 
Non-cash interest expense, net9,533  7,805 
Stock-based compensation expense3,718  5,905 
Gain on derivative instruments(5,399)  
Deferred income taxes(21,588) (4,276)
Excess tax benefit from stock-based payment arrangements  (637)
Loss on sale of discontinued operations, net of tax1,830   
Reversal of allowances on receivable portfolios, net(2,191) (2,859)
Changes in operating assets and liabilities   
Deferred court costs and other assets1,233  (11,873)
Prepaid income tax and income taxes payable18,824  4,847 
Accounts payable, accrued liabilities and other liabilities(14,023) (15,081)
Net cash provided by operating activities from continuing operations29,757  20,055 
Net cash provided by (used in) operating activities from discontinued operations2,096  (665)
Net cash provided by operating activities31,853  19,390 
Investing activities:   
Cash paid for acquisitions, net of cash acquired(675)  
Proceeds from divestiture of business, net of cash divested106,041   
Purchases of receivable portfolios, net of put-backs(280,990) (143,239)
Collections applied to investment in receivable portfolios, net180,796  164,217 
Purchases of property and equipment(2,252) (4,271)
Other, net1,191  (251)
Net cash provided by investing activities from continuing operations4,111  16,456 
Net cash provided by (used in) used in investing activities from discontinued operations14,685  (11,965)
Net cash provided by investing activities18,796  4,491 
Financing activities:   
Payment of loan costs(1,395) (4,279)
Proceeds from credit facilities185,883  134,285 
Repayment of credit facilities(235,151) (124,395)
Repayment of senior secured notes(3,750) (3,750)
Repayment of securitized notes(935) (6,625)
Taxes paid related to net share settlement of equity awards(3,354) (4,554)
Excess tax benefit from stock-based payment arrangements  637 
Other, net(2,785) (3,592)
Net cash used in financing activities(61,487) (12,273)
Net (decrease) increase in cash and cash equivalents(10,838) 11,608 
Effect of exchange rate changes on cash1,858  438 
Cash and cash equivalents, beginning of period153,593  124,163 
Cash and cash equivalents, end of period144,613  136,209 
Cash and cash equivalents of discontinued operations, end of period  24,183 
Cash and cash equivalents of continuing operations, end of period$144,613  $112,026 
        

 

ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted Income Attributable to Encore to GAAP Net (Loss) Income Attributable to Encore, Adjusted 
EBITDA to GAAP Net (Loss) Income, and Adjusted Operating Expenses Related to Portfolio Purchasing and Recovery 
Business to GAAP Total Operating Expenses
(In Thousands, Except Per Share amounts) (Unaudited)
 
  Three Months Ended March 31,
  2016 2015
  $ Per Diluted
Share—
Accounting
 Per Diluted
Share—
Economic
 $ Per Diluted
Share—
Accounting
 Per Diluted
Share—
Economic
GAAP net income from continuing operations attributable to Encore, as reported $28,876  $1.12  $1.12  $27,545  $1.01  $1.04 
Adjustments:            
Convertible notes non-cash interest and issuance cost amortization, net of tax 1,804  0.07  0.07  1,666  0.06  0.07 
Acquisition, integration and restructuring related expenses, net of tax 1,329  0.05  0.05  1,348  0.05  0.05 
Settlement fees and related administrative expenses, net of tax 1,853  0.07  0.07       
Adjusted income from continuing operations attributable to Encore $33,862  $1.31  $1.31  $30,559  $1.12  $1.16 
                         


  Three Months Ended
 March 31,
 2016 2015
GAAP net income, as reported $26,607  $29,967 
Adjustments:    
Loss (income) from discontinued operations, net of tax 3,182  (1,880)
Interest expense 50,691  42,303 
Provision for income taxes 10,148  14,614 
Depreciation and amortization 9,861  8,137 
Amount applied to principal on receivable portfolios 177,711  160,961 
Stock-based compensation expense 3,718  5,905 
Acquisition, integration and restructuring related expenses 2,141  2,766 
Settlement fees and related administrative expenses 2,988   
Adjusted EBITDA $287,047  $262,773 
         


  Three Months Ended
 March 31,
 2016 2015
GAAP total operating expenses, as reported $205,513  $194,895 
Adjustments:    
Stock-based compensation expense (3,718) (5,905)
Operating expenses related to non-portfolio purchasing and recovery business (26,885) (21,623)
Acquisition, integration and restructuring related expenses (3,059) (2,766)
Settlement fees and related administrative expenses (2,988)  
Adjusted operating expenses related to portfolio purchasing and recovery business $168,863  $164,601 
         

            

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