Encore Capital Group Announces First Quarter 2015 Financial Results; Record Collections Drive Strong Performance
-
GAAP EPS increases 32% to
$1.08 -
Non-GAAP Economic EPS increases 14% to record
$1.23 -
Collections increase 7% to record
$425 million -
Adjusted EBITDA increases 7% to record
$266 million -
Adjusted EBITDA for trailing twelve months increases 18% to
$1.0 billion
"Encore delivered strong financial performance in the first quarter as our international expansion and consumer-focused programs drove record collections. With our foreign subsidiaries now assimilated into Encore, our businesses outside of
"We continue to make solid progress on our company-wide consumer-focused programs. These initiatives, designed to improve our liquidation rates while maintaining a positive consumer experience, are increasing yields on our portfolios."
Financial Highlights for the First Quarter of 2015:
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Estimated Remaining Collections (ERC) grew 7% to
$5.1 billion , compared to$4.8 billion in the same period of the prior year.
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Gross collections from the portfolio purchasing and recovery business grew 7% to a record
$425 million , compared to$397 million in the same period of the prior year.
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Investment in receivable portfolios in the portfolio purchasing and recovery business was
$125 million , to purchase$1.0 billion in face value of debt, compared to$468 million , to purchase$4.3 billion in face value of debt in the same period of the prior year, which included Cabot's$208 million acquisition of Marlin's portfolio inFebruary 2014 . Encore's subsidiaryPropel Financial Services also purchased$54 million of tax liens during the first quarter of 2015, raising Encore's total deployment in the quarter to$179 million .
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Total revenues increased 13% to a record
$286 million , compared to$254 million in the same period of the prior year.
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Total operating expenses increased 8% to
$200 million , compared to$185 million in the same period of the prior year. Adjusted operating expenses (defined as operating expenses excluding stock-based compensation expense, expenses related to non-portfolio purchasing and recovery business, one-time charges, and acquisition and integration related expenses) per dollar collected for the portfolio purchasing and recovery business increased to 38.8%, compared to 37.7% in the same period of the prior year.
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Adjusted EBITDA (defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expenses, portfolio amortization, one-time items, and acquisition and integration related expenses), increased 7% to
$266 million , compared to$250 million in the same period of the prior year.
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Total interest expense increased to
$42.3 million , as compared to$38.0 million in the same period of the prior year, reflecting the financing of Encore's recent acquisitions.
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Net income attributable to Encore was
$29.4 million , or$1.08 per fully diluted share, compared to net income attributable to Encore of$23.2 million , or$0.82 per fully diluted share, in the same period of the prior year.
-
Adjusted income attributable to Encore (defined as net income attributable to Encore excluding the noncontrolling interest, non-cash interest and issuance cost amortization, one-time items, and acquisition and integration related expenses, all net of tax) increased 13% to
$32.4 million , compared to adjusted income attributable to Encore of$28.8 million in the same period of the prior year.
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Adjusted income attributable to Encore per share (also referred to as Economic EPS) grew 14% to
$1.23 , compared to$1.08 in the same period of the prior year. In the first quarter, Economic EPS adjusts for approximately 0.9 million shares associated with convertible notes that will not be issued as a result of certain hedge and warrant transactions, but are reflected in the fully diluted share count for accounting purposes.
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Available capacity under Encore's revolving credit facility, subject to borrowing base and applicable debt covenants, was
$205.6 million as of March 31, 2015, not including the$250 million additional capacity provided by the facility's accordion feature. Total debt was$2.7 billion as of March 31, 2015, compared to$2.8 billion as ofDecember 31, 2014 .
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Debt-to-Adjusted EBITDA ratio, on a trailing twelve months basis, declined to 2.65 times at
March 31, 2015 , compared to 3.04 times atMarch 31, 2014 .
Conference Call and Webcast
The Company will hold a conference call today,
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 (855) 541-0982 or (704) 288-0606. The Conference ID is 33610109. To access the live webcast via the Internet, log on to the Investors page of the Company's website at www.encorecapital.com.
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.
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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
FINANCIAL TABLES FOLLOW
ENCORE CAPITAL GROUP, INC. Condensed Consolidated Statements of Financial Condition (In Thousands, Except Par Value Amounts) (Unaudited) |
||
March 31, 2015 |
December 31, 2014 |
|
Assets | ||
Cash and cash equivalents | $ 136,209 | $ 124,163 |
Investment in receivable portfolios, net | 2,038,407 | 2,143,560 |
Receivables secured by property tax liens, net | 264,691 | 259,432 |
Property and equipment, net | 64,601 | 66,969 |
Deferred court costs, net | 64,475 | 60,412 |
Other assets | 214,103 | 197,666 |
Goodwill | 865,701 | 897,933 |
Total assets | $ 3,648,187 | $ 3,750,135 |
Liabilities and equity | ||
Liabilities: | ||
Accounts payable and accrued liabilities | $ 195,887 | $ 231,967 |
Debt | 2,690,882 | 2,773,554 |
Other liabilities | 87,458 | 79,675 |
Total liabilities | 2,974,227 | 3,085,196 |
Commitments and contingencies | ||
Redeemable noncontrolling interest | 28,435 | 28,885 |
Redeemable equity component of convertible senior notes | 8,355 | 9,073 |
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, 26,012 shares and 25,794 shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively | 260 | 258 |
Additional paid-in capital | 128,135 | 125,310 |
Accumulated earnings | 527,779 | 498,354 |
Accumulated other comprehensive loss | (23,058) | (922) |
Total Encore Capital Group, Inc. stockholders' equity | 633,116 | 623,000 |
Noncontrolling interest | 4,054 | 3,981 |
Total equity | 637,170 | 626,981 |
Total liabilities, redeemable equity and equity | $ 3,648,187 | $ 3,750,135 |
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, 2015 |
December 31, 2014 |
|
Assets | ||
Cash and cash equivalents | $ 63,171 | $ 44,996 |
Investment in receivable portfolios, net | 935,063 | 993,462 |
Receivables secured by property tax liens, net | 102,042 | 108,535 |
Property and equipment, net | 15,366 | 15,957 |
Deferred court costs, net | 21,359 | 17,317 |
Other assets | 79,797 | 80,264 |
Goodwill | 638,697 | 671,434 |
Liabilities | ||
Accounts payable and accrued liabilities | $ 103,855 | $ 137,201 |
Debt | 1,492,689 | 1,556,956 |
Other liabilities | 21,465 | 8,724 |
ENCORE CAPITAL GROUP, INC. Condensed Consolidated Statements of Income (In Thousands, Except Per Share Amounts) (Unaudited) |
||
Three Months Ended March 31, |
||
2015 | 2014 | |
Revenues | ||
Revenue from receivable portfolios, net | $ 264,110 | $ 237,568 |
Other revenues | 14,410 | 11,349 |
Net interest income | 7,143 | 4,824 |
Total revenues | 285,663 | 253,741 |
Operating expenses | ||
Salaries and employee benefits | 67,748 | 58,137 |
Cost of legal collections | 54,998 | 49,825 |
Other operating expenses | 25,234 | 26,423 |
Collection agency commissions | 10,685 | 8,276 |
General and administrative expenses | 32,612 | 36,694 |
Depreciation and amortization | 8,350 | 6,117 |
Total operating expenses | 199,627 | 185,472 |
Income from operations | 86,036 | 68,269 |
Other (income) expense | ||
Interest expense | (42,303) | (37,962) |
Other income | 2,117 | 265 |
Total other expense | (40,186) | (37,697) |
Income before income taxes | 45,850 | 30,572 |
Provision for income taxes | (15,883) | (11,742) |
Net income | 29,967 | 18,830 |
Net (income) loss attributable to noncontrolling interest | (542) | 4,350 |
Net income attributable to Encore Capital Group, Inc. stockholders | $ 29,425 | $ 23,180 |
Earnings per share attributable to Encore Capital Group, Inc.: | ||
Basic | $ 1.13 | $ 0.90 |
Diluted | $ 1.08 | $ 0.82 |
Weighted average shares outstanding: | ||
Basic | 26,072 | 25,749 |
Diluted | 27,315 | 28,196 |
ENCORE CAPITAL GROUP, INC. Condensed Consolidated Statements of Cash Flows (Unaudited, In Thousands) |
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Three Months Ended March 31, |
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2015 | 2014 | |
Operating activities: | ||
Net income | $ 29,967 | $ 18,830 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 8,350 | 6,117 |
Non-cash interest expense | 8,141 | 5,254 |
Stock-based compensation expense | 5,905 | 4,836 |
Deferred income taxes | (4,276) | 4,767 |
Excess tax benefit from stock-based payment arrangements | (637) | (2,629) |
Reversal of allowances on receivable portfolios, net | (2,859) | (3,230) |
Changes in operating assets and liabilities | ||
Deferred court costs and other assets | (15,029) | (471) |
Prepaid income tax and income taxes payable | 6,166 | 3,123 |
Accounts payable, accrued liabilities and other liabilities | (16,338) | (24,446) |
Net cash provided by operating activities | 19,390 | 12,151 |
Investing activities: | ||
Cash paid for acquisitions, net of cash acquired | — | (257,726) |
Purchases of receivable portfolios, net of put-backs | (143,239) | (257,175) |
Collections applied to investment in receivable portfolios, net | 164,217 | 161,927 |
Originations and purchases of receivables secured by tax liens | (53,516) | (19,123) |
Collections applied to receivables secured by tax liens | 41,598 | 22,085 |
Purchases of property and equipment | (4,271) | (2,978) |
Other | (298) | — |
Net cash provided by (used in) investing activities | 4,491 | (352,990) |
Financing activities: | ||
Payment of loan costs | (4,279) | (14,222) |
Proceeds from credit facilities | 134,285 | 457,266 |
Repayment of credit facilities | (124,395) | (447,045) |
Proceeds from senior secured notes | — | 288,645 |
Repayment of senior secured notes | (3,750) | (3,750) |
Proceeds from issuance of convertible senior notes | — | 161,000 |
Repayment of securitized notes | (6,625) | — |
Purchases of convertible hedge instruments | — | (33,576) |
Taxes paid related to net share settlement of equity awards | (4,554) | (5,244) |
Excess tax benefit from stock-based payment arrangements | 637 | 2,629 |
Other, net | (3,592) | 408 |
Net cash (used in) provided by financing activities | (12,273) | 406,111 |
Net increase in cash and cash equivalents | 11,608 | 65,272 |
Effect of exchange rate changes on cash | 438 | 4,904 |
Cash and cash equivalents, beginning of period | 124,163 | 126,213 |
Cash and cash equivalents, end of period | $ 136,209 | $ 196,389 |
Supplemental disclosures of cash flow information: | ||
Cash paid for interest | $ 18,857 | $ 41,130 |
Cash paid for income taxes | 14,651 | 6,103 |
Supplemental schedule of non-cash investing and financing activities: | ||
Fixed assets acquired through capital lease | $ 1,290 | $ 1,169 |
ENCORE CAPITAL GROUP, INC. Supplemental Financial Information Reconciliation of Adjusted Income Attributable to Encore to GAAP Net Income Attributable to Encore, Adjusted EBITDA to GAAP Net Income, and Adjusted Operating Expenses to GAAP Total Operating Expenses (In Thousands, Except Per Share amounts) (Unaudited) |
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Three Months Ended March 31, | ||||||
2015 | 2014 | |||||
$ |
Per Diluted Share— Accounting |
Per Diluted Share— Economic |
$ |
Per Diluted Share— Accounting |
Per Diluted Share— Economic |
|
GAAP net income attributable to Encore, as reported | $ 29,425 | $ 1.08 | $ 1.11 | $ 23,180 | $ 0.82 | $ 0.87 |
Adjustments: | ||||||
Convertible notes non-cash interest and issuance cost amortization, net of tax | 1,666 | 0.06 | 0.07 | 1,291 | 0.05 | 0.05 |
Acquisition, integration and restructuring related expenses, net of tax | 1,352 | 0.05 | 0.05 | 4,358 | 0.15 | 0.16 |
Adjusted income attributable to Encore | $ 32,443 | $ 1.19 | $ 1.23 | $ 28,829 | $ 1.02 | $ 1.08 |
Three Months Ended March 31, | ||||||
2015 | 2014 | |||||
GAAP net income, as reported | $ 29,967 | $ 18,830 | ||||
Adjustments: | ||||||
Interest expense | 42,303 | 37,962 | ||||
Provision for income taxes | 15,883 | 11,742 | ||||
Depreciation and amortization | 8,350 | 6,117 | ||||
Amount applied to principal on receivable portfolios | 160,961 | 159,106 | ||||
Stock-based compensation expense | 5,905 | 4,836 | ||||
Acquisition, integration and restructuring related expenses | 2,772 | 11,081 | ||||
Adjusted EBITDA | $ 266,141 | $ 249,674 | ||||
Three Months Ended March 31, | ||||||
2015 | 2014 | |||||
GAAP total operating expenses, as reported | $ 199,627 | $ 185,472 | ||||
Adjustments: | ||||||
Stock-based compensation expense | (5,905) | (4,836) | ||||
Operating expenses related to non-portfolio purchasing and recovery business | (26,349) | (19,832) | ||||
Acquisition, integration and restructuring related expenses | (2,772) | (11,081) | ||||
Adjusted operating expenses | $ 164,601 | $ 149,723 |
CONTACT:Encore Capital Group, Inc. Bruce Thomas (858) 309-6442 bruce.thomas@encorecapital.com