Encore Capital Group Announces First Quarter 2012 Financial Results and the Acquisition of Propel Financial Services

May 9, 2012 at 4:05 PM EDT

SAN DIEGO, May 9, 2012 /PRNewswire/ -- Encore Capital Group, Inc. (Nasdaq: ECPG), a leader in consumer debt buying and recovery, today announced consolidated financial results for the first quarter ended March 31, 2012.

"Encore delivered strong first quarter financial results with record collections and Adjusted EBITDA," said Brandon Black, Encore's President and Chief Executive Officer. "Our cost-to-collect continued to improve, declining to a record 38.4 cents per dollar collected. This cost advantage, combined with our analytical discipline and strong capital position, enabled us to deploy more than $130 million on portfolio purchases in the first quarter and positioned us to invest over $200 million in the second quarter, of which, more than $100 million is expected to come from the purchase of nine portfolios from one seller. Our continued strong performance is the direct result of the hard work and dedication of the entire Encore team."

The company also announced the acquisition of Propel Financial Services, LLC, a leader in the tax lien acquisition industry. Black commented: "Propel has an excellent track record of deploying capital at attractive returns and provides a valuable and affordable service for consumers, consistent with Encore's core competencies. The acquisition of Propel will capitalize on Encore's expertise in consumer-level analytics and operational capabilities, will leverage the company's deep experience assisting financially stressed consumers, and will put Encore in position to build a significant tax lien acquisition business."

To facilitate these transactions, Encore announced the expansion of its existing credit facility, led by SunTrust Robinson Humphrey, to $555 million, with a $100 million accordion feature, and an increase in the availability of capital under a revised borrowing base calculation. In addition, the company established a new $160 million facility, led by Texas Capital Bank, to provide the funding for the Propel acquisition and its ongoing capital requirements. This facility also includes a $40 million accordion feature to provide for future growth.

Finally, Encore shared that it had reached an agreement in principle for the sale of its bankruptcy servicing subsidiary, Ascension Capital Group, to a company with deep expertise in the bankruptcy space and a strong technology platform. "This is a positive outcome for Encore's shareholders, Ascension's customers, and for our Ascension employees, who will now have the opportunity to flourish in a new environment," said Black.

First Quarter 2012 Highlights:

  • Gross collections were $231.0 million, a 21% increase over the $191.1 million in the same period of the prior year.
  • Investment in receivable portfolios was $130.5 million, to purchase $2.9 billion in face value of debt, compared to $90.7 million, to purchase $2.9 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 $96.5 million as of March 31, 2012. Total debt, consisting of the revolving credit facility, senior secured notes and capital lease obligations, was $398.2 million as of March 31, 2012, an increase of 2% from $389.0 million as of December 31, 2011.
  • Revenue from receivable portfolios, net was $126.4 million, a 20% increase over the $105.3 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 54.9%, compared to 58.0% in the same period of the prior year.
  • Revenue from bankruptcy servicing was $3.8 million, a 23% decrease from the $4.9 million in the same period of the prior year.
  • Excluding a one-time, non-cash impairment charge for Ascension, operating expenses were $95.9 million, a 16% increase over the $82.5 million in the same period of the prior year. Cost per dollar collected (costs exclude stock-based compensation expense, bankruptcy servicing operating expenses, and acquisition related expenses) decreased to 38.4% compared to 40.0% in the same period of the prior year.
  • Adjusted EBITDA, defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expense, portfolio amortization, one-time impairment charge for Ascension, and acquisition related expenses, was $143.3 million, a 23% increase over the $116.4 million in the same period of the prior year (see Non-GAAP Financial Measures section below).
  • Total interest expense was $5.5 million, compared to $5.6 million in the same period of the prior year.
  • Net income was $11.4 million or $0.44 per fully diluted share, compared to net income of $13.7 million or $0.54 per fully diluted share in the same period of the prior year. Excluding the non-cash impairment charges of $10.3 million, earnings per fully diluted share would have been $0.69, or 28% higher than 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 $14.72 as of March 31, 2012, a 6% increase over $13.84 as of December 31, 2011.

Additional Financial Information:

Certain events affected the comparability of 2012 versus 2011 quarterly results, as outlined below. For a more detailed comparison of 2012 versus 2011 results, please refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations section included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.

  • The Company recorded a pre-tax impairment charge for goodwill and identifiable intangible assets of $10.3 million, or $0.25 per fully diluted share, after the effect of income taxes, for its Ascension bankruptcy servicing business.

Acquisition of Propel Financial Services

On May 8th, Encore concluded the acquisition of Propel Financial Services, LLC, a Texas-based tax lien transfer company. Propel assists property owners who are delinquent on their property taxes by acquiring tax obligations from local municipalities and working with property owners to create mutually agreeable payment plans. Encore acquired Propel at a purchase price of $187 million, utilizing its new $160 million credit facility and existing cash and credit facilities. The acquisition is expected to be accretive to 2012 earnings.

For more information about Propel, please visit the Company's website at www.propelfinancialservices.com.

Conference Call and Webcast

The Company will hold a conference call and webcast today at 2:00 p.m. Pacific time / 5:00 p.m. Eastern time to discuss first quarter results. During the conference call, the Company will refer to slides which will be available via webcast and then for download at the Investor Relations page at www.encorecapital.com

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 877-670-9781 or (408) 940-3818. To access the live webcast via the Internet, log on at the Investor Relations page 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 73935141. A replay of the conference call will also be available shortly after the call on the Company's website.

Non-GAAP Financial Measures

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 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, bankruptcy servicing operating expenses, and acquisition related expenses in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented. Adjusted EBITDA, adjusted operating expenses excluding stock-based compensation expense, bankruptcy servicing operating expenses, and acquisition related 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, bankruptcy servicing operating expenses, and acquisition related 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. The company purchases portfolios of defaulted consumer receivables from major banks, credit unions, and utility providers and partners with individuals as they repay their obligations and work toward financial recovery. Encore's success and future growth are driven by its sophisticated and widespread use of analytics, its broad investments in data and behavioral science, the significant cost advantages provided by both its worldwide operations and its enterprise-wide, account-level cost database, and the company's demonstrated commitment to conducting business ethically and in ways that support its consumers' financial recovery.

Headquartered in San Diego, Encore 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.

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 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) 309-6904
paul.grinberg@encorecapital.com

Adam Sragovicz (858) 309-9509
adam.sragovicz@encorecapitalgroup.com

 

FINANCIAL TABLES FOLLOW

 

ENCORE CAPITAL GROUP, INC.


Condensed Consolidated Statements of Financial Condition

(In Thousands, Except Par Value Amounts)

(Unaudited)



March 31,
2012

December 31,
2011

Assets



Cash and cash equivalents

$ 15,446

$   8,047

Accounts receivable, net

3,615

3,265

Investment in receivable portfolios, net

741,580

716,454

Deferred court costs, net

39,839

38,506

Property and equipment, net

19,603

17,796

Other assets

11,842

11,968

Goodwill

6,047

15,985

Identifiable intangible assets, net

462




          Total assets

$ 837,972

$ 812,483




Liabilities and stockholders' equity



Liabilities:



Accounts payable and accrued liabilities

$ 31,161

$ 29,628

Income tax payable

2,078

Deferred tax liabilities, net

16,333

15,709

Debt

398,246

388,950

Other liabilities

5,297

6,661




Total liabilities

453,115

440,948




Commitments and contingencies



Stockholders' 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, 24,696 shares

 and 24,520 shares issued and outstanding as of March 31, 2012 and

 December 31, 2011, respectively

247

245

Additional paid-in capital

124,638

123,406

Accumulated earnings

261,258

249,852

Accumulated other comprehensive loss

(1,286)

(1,968)




Total stockholders' equity

384,857

371,535




Total liabilities and stockholders' equity

$ 837,972

$ 812,483




 

ENCORE CAPITAL GROUP, INC.


Condensed Consolidated Statements of Comprehensive Income

(In Thousands, Except Per Share Amounts)

(Unaudited)



Three Months Ended

March 31,


2012

2011

Revenues



Revenue from receivable portfolios, net

$ 126,405

$ 105,326

Servicing fees and other related revenue

3,817

4,977




          Total revenues

130,222

110,303




Operating expenses



Salaries and employee benefits (excluding stock-based compensation expense)

23,109

19,040

Stock-based compensation expense

2,266

1,765

Cost of legal collections

38,635

36,509

Other operating expenses

12,411

10,096

Collection agency commissions

3,959

3,914

General and administrative expenses

14,132

10,169

Depreciation and amortization

1,363

1,053

Impairment charge for goodwill and identifiable intangible assets

10,349




          Total operating expenses

106,224

82,546




Income from operations

23,998

27,757




Other (expense) income



Interest expense

(5,515)

(5,593)

Other income

267

116




          Total other expenses

(5,248)

(5,477)




Income before income taxes

18,750

22,280

Provision for income taxes

(7,344)

(8,601)




Net income

$ 11,406

$ 13,679




Weighted average shares outstanding:



Basic

24,779

24,260

Diluted

25,740

25,451

Earnings per share:



Basic

$     0.46

$     0.56

Diluted

$     0.44

$     0.54




Other comprehensive income:



          Unrealized gain on derivative instruments

$   1,122

$      836

          Income tax provision related to unrealized gain on derivative instruments

(440)

(329)




Other comprehensive income, net of tax

682

507




Comprehensive income

$ 12,088

$ 14,186




 

ENCORE CAPITAL GROUP, INC


Condensed Consolidated Statements of Cash Flows

(Unaudited, In Thousands)



Three Months Ended

March 31,


2012

2011

Operating activities:



Net income

$  11,406

$  13,679

Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation and amortization

1,363

1,053

Impairment charge for goodwill and identifiable intangible assets

10,349

Amortization of loan costs

466

440

Stock-based compensation expense

2,266

1,765

Deferred income tax expense (benefit)

623

(58)

Excess tax benefit from stock-based payment arrangements

(1,067)

(1,343)

Provision for allowances on receivable portfolios, net

373

5,498

Changes in operating assets and liabilities



Other assets

(326)

(1,819)

Deferred court costs

(1,333)

(2,128)

Prepaid income tax and income taxes payable

2,130

8,437

Accounts payable, accrued liabilities and other liabilities

853

(450)




          Net cash provided by operating activities

27,103

25,074




Investing activities:



Purchases of receivable portfolios

(130,463)

(90,675)

Collections applied to investment in receivable portfolios, net

104,230

80,211

Proceeds from put-backs of receivable portfolios

734

900

Purchases of property and equipment

(1,555)

(630)




         Net cash used in investing activities

(27,054)

(10,194 )




Financing activities:



Payment of loan costs

(734)

Proceeds from senior secured notes

25,000

Proceeds from revolving credit facility

43,500

19,000

Repayment of revolving credit facility

(34,500)

(46,000)

Proceeds from exercise of stock options

1,061

297

Taxes paid related to net share settlement of equity awards

(2,093)

(1,439)

Excess tax benefit from stock-based payment arrangements

1,067

1,343

Repayment of capital lease obligations

(1,685)

(877)




                  Net cash provided by (used in) financing activities

7,350

(3,410)




Net increase in cash and cash equivalents

7,399

11,470

Cash and cash equivalents, beginning of period

8,047

10,905




Cash and cash equivalents, end of period

$  15,446

$  22,375




Supplemental disclosures of cash flow information:



Cash paid for interest

$    5,119

$    5,002

Cash paid for income taxes

4,075

166

Supplemental schedule of non-cash investing and financing activities:



Fixed assets acquired through capital lease

1,564

371


 

ENCORE CAPITAL GROUP, INC.


Supplemental Financial Information

Reconciliation of Adjusted EBITDA to GAAP Net Income, Adjusted Operating Expenses Excluding Stock-based Compensation Expense, Bankruptcy Servicing Operating Expenses, and Acquisition Related 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
March 31,


2012

2011

GAAP net income, as reported

$ 11,406

$ 13,679

Interest expense

5,515

5,593

Provision for income taxes

7,344

8,601

Depreciation and amortization

1,363

1,053

Amount applied to principal on receivable portfolios

104,603

85,709

Stock-based compensation expense

2,266

1,765

Impairment charge for goodwill and identifiable intangible assets

10,349

Acquisition related expenses

489




Adjusted EBITDA

$143,335

$116,400

 


Three Months Ended
March 31,


2012

2011

GAAP total operating expenses, as reported

$           106,224

$ 82,546

Stock-based compensation expense

(2,266)

(1,765)

Bankruptcy servicing operating expenses

(14,830)

(4,319)

Acquisition related expenses

(489)




Adjusted operating expenses excluding stock-based

 compensation expense, bankruptcy servicing operating expenses

 and acquisition related expenses

$88,639

$76,462

 


As of

March 31, 2012

As of

December 31, 2011

GAAP total stockholders' equity, as reported

$384,857

$371,535

Goodwill

(6,047)

(15,985)

Identifiable intangible assets, net

(462)




Tangible book value

$378,810

$355,088

Diluted shares outstanding

25,740

25,657




Tangible book value per share

$14.72

$13.84

 

 

SOURCE Encore Capital Group, Inc.