Encore Capital Group Announces Fourth Quarter and Full Year 2007 Results
SAN DIEGO, Feb. 19 /PRNewswire-FirstCall/ -- Encore Capital Group, Inc. (Nasdaq: ECPG), a leading distressed consumer debt management company, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2007.
For the fourth quarter of 2007:
-- Gross collections were $85.4 million, a 10% decrease compared to $94.5
million in the same period of the prior year.
-- Investments in receivable portfolios were $74.6 million, to purchase
$1.8 billion in face value of debt, compared to $63.6 million, to
purchase $1.4 billion in face value of debt in the same period of the
prior year.
-- Revenues from receivable portfolios were $55.8 million, a 14% decrease
compared to $64.9 million in the same period of the prior year.
Revenue recognized on receivable portfolios, as a percentage of
portfolio collections, was 65%, compared to 69% in the same period of
the prior year.
-- Revenues from bankruptcy servicing were $2.9 million, compared to $3.2
million in the same period of the prior year.
-- Total operating expenses were $47.4 million, a 2% decrease compared to
$48.2 million in the same period of the prior year. Operating expense
(excluding stock-based compensation expense, bankruptcy servicing
operating expenses and costs related to the consideration of strategic
alternatives) per dollar collected increased to 50.7% compared to 44.9%
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 $34.9 million, a 32% decrease compared to
$51.2 million in the same period of the prior year.
-- Total interest expense was $4.0 million, compared to $9.0 million in
the same period of the prior year.
-- Net income was $4.8 million or $0.21 per fully diluted share, compared
to net income of $6.6 million or $0.28 per fully diluted share in the
same period of the prior year.
For the full year of 2007:
-- Gross collections were $355.2 million, a 5% increase over $337.1
million in 2006.
-- Total revenues were $254.0 million, consistent with the $255.1 million
in 2006.
-- Adjusted EBITDA was $163.0 million, a decline of 8% from the $177.4
million in 2006.
-- Net income was $15.0 million or $0.64 per fully diluted share, compared
to net income of $24.0 million or $1.03 per fully diluted share in
2006.
Additional information:
Several events affect comparability of 2007 versus 2006 in both quarterly and annual results, as outlined below. For a more detailed comparison of 2007 versus 2006 results, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2007, which the Company filed today.
-- In the fourth quarter of 2006, the Company sold accounts amounting to
approximately $1.9 billion in face value financed under its previous
credit facility for $13.9 million, which included $3.4 million in
zero-basis collection.
-- In the second quarter of 2007, the Company entered into an agreement
with the lender under its previous credit facility to eliminate all
future contingent interest for a one-time payment of $16.9 million.
Accordingly, after May 7, 2007, the Company no longer incurred any
contingent interest expense.
-- In the third quarter of 2007, the Company announced certain cost
savings initiatives aimed at reducing its overall operating expenses.
The Company recorded one-time charges of $1.4 million related to the
reduction in workforce.
-- In the fourth quarter of 2007, the Company recorded a net impairment
provision of $8.7 million, compared to $0.7 million in the same period
of the prior year. In 2007, the Company recorded a net impairment
provision of $11.2 million, including $1.4 million to write-down
healthcare receivables, compared to $1.4 million in the prior year.
-- In the fourth quarter of 2007, the Company expensed $6.3 million in
upfront court costs, compared to $5.3 million in the same period of the
prior year. In 2007, the Company expensed $28.0 million in upfront
court costs, compared to $15.5 million in the prior year.
-- In the fourth quarter of 2007, the Company changed its court cost
reserve methodology, which resulted in an increase in the deferred
court cost asset and a reduction in operating expenses of $0.8 million.
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 total operating expenses excluding stock-based compensation expense, bankruptcy servicing operating expenses and costs related to the consideration of strategic alternatives in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing 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 Encore Capital Group's operating performance. Neither Adjusted EBITDA nor operating expenses excluding stock-based compensation expense, bankruptcy servicing operating expenses and costs related to the consideration of strategic alternatives has been prepared in accordance with generally accepted accounting principles (GAAP). 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, and a reconciliation of operating expenses excluding stock-based compensation expense, bankruptcy servicing operating expenses and costs related to the consideration of strategic alternatives to the GAAP measure total operating expenses in the attached financial tables.
About Encore Capital Group, Inc.
Encore Capital Group, Inc. is a systems-driven purchaser and manager of charged-off consumer receivables portfolios. More information on the company can be found at http://www.encorecapitalgroup.com.
Contact:
Encore Capital Group, Inc.
Paul Grinberg (858) 309-6904
paul.grinberg@encorecapitalgroup.com
or
Ren Zamora (858) 560-3598
ren.zamora@encorecapitalgroup.com
FINANCIAL TABLES FOLLOW
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
December 31, December 31,
2007 (A) 2006 (A)
Assets
Cash and cash equivalents $4,900 $10,791
Restricted cash 3,776 4,660
Accounts receivable, net 4,136 2,599
Investment in receivable portfolios, net 392,209 300,348
Deferred court costs 20,533 10,934
Property and equipment, net 4,390 5,249
Prepaid income tax 10,346 3,727
Forward flow asset 15,863 27,566
Other assets 8,800 12,101
Goodwill 15,985 13,735
Identifiable intangible assets, net 2,557 3,628
Total assets $483,495 $395,338
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued liabilities $20,346 $23,744
Accrued profit sharing arrangement - 6,869
Deferred tax liabilities, net 13,669 10,667
Deferred revenue and purchased servicing
obligation 3,898 2,790
Debt 272,420 200,132
Other liabilities 1,642 -
Total liabilities 311,975 244,202
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, 22,992 shares and 22,781 shares
issued and outstanding as of December 31,
2007, and 2006, respectively 230 228
Additional paid-in capital 73,310 66,532
Accumulated earnings 98,975 83,933
Accumulated other comprehensive
(loss) income (995) 443
Total stockholders' equity 171,520 151,136
Total liabilities and stockholders'
equity $483,495 $395,338
(A) Derived from the audited consolidated financial statements as of
December 31, 2007.
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
Three Months Ended
December 31, Year Ended
(Unaudited) December 31,
2007 2006 2007 (A) 2006 (A)
Revenues
Revenue from
receivable
portfolios, net $55,813 $64,915 $241,402 $239,340
Servicing fees and
other related
revenue 2,904 3,215 12,609 15,800
Total revenues 58,717 68,130 254,011 255,140
Operating expenses
Salaries and
employee benefits
(excluding stock-
based compensation
expense) 13,765 15,604 64,153 63,962
Stock-based
compensation
expense 1,001 1,334 4,287 5,669
Cost of legal
collections 18,987 15,312 78,636 52,079
Other operating
expenses 4,563 5,176 21,533 22,585
Collection agency
commissions 3,772 3,852 12,411 18,030
General and
administrative
expenses 4,513 5,889 17,478 17,310
Depreciation and
amortization 810 1,002 3,351 3,894
Total operating
expenses 47,411 48,169 201,849 183,529
Income before other
(expense) income and
income taxes 11,306 19,961 52,162 71,611
Other (expense) income
Interest expense (4,000) (3,226) (13,904) (12,512)
Contingent interest
expense - (5,774) (4,123) (18,520)
Pay-off of future
contingent interest - (11,733) -
Other income 918 230 1,071 609
Total other expense (3,082) (8,770) (28,689) (30,423)
Income before income
taxes 8,224 11,191 23,473 41,188
Provision for income
taxes (3,376) (4,564) (8,431) (17,180)
Net income $4,848 $6,627 $15,042 $24,008
Basic - earnings per
share computation:
Net income available
to common stockholders $4,848 $6,627 $15,042 $24,008
Weighted average shares
outstanding 22,991 22,780 22,865 22,754
Earnings per
share - Basic $0.21 $0.29 $0.66 $1.06
Diluted - earnings per
share computation:
Net income available
to common stockholders $4,848 $6,627 $15,042 $24,008
Interest expense on
convertible notes, net
of tax - - - -
Income available to
common stockholders
assuming conversion
of convertible notes $4,848 $6,627 $15,042 $24,008
Weighted average
shares outstanding 22,991 22,780 22,876 22,754
Incremental shares
from assumed
conversion of warrants
and stock awards 475 614 510 636
Incremental shares from
assumed conversion of
convertible notes - - - -
Diluted weighted average
shares outstanding 23,466 23,394 23,386 23,390
Earnings per share
- Diluted $0.21 $0.28 $0.64 $1.03
(A) Derived from the audited consolidated financial statements.
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Years ended
December 31,
2007 (A) 2006 (A)
Operating activities
Gross collections $355,193 $337,097
Less:
Amounts collected on behalf of third
parties (469) (723)
Amounts applied to principal on
receivable portfolios (102,093) (95,647)
Servicing fees 112 91
Operating expenses (193,729) (161,294)
Interest payments (12,983) (11,838)
Contingent interest payments (22,724) (28,178)
Other income 1,071 609
Decrease (increase) in restricted cash 884 (448)
Income taxes (8,730) (874)
Excess tax benefits from stock-based
payment arrangements (698) (768)
Net cash provided by operating activities 15,834 38,027
Investing activities
Cash paid for Jefferson Capital - -
Cash paid for Ascension Capital Group - -
Escrow deposit on employee retention
contract - -
Cash paid for India membership interest (2,250) -
Purchases of receivable portfolios, net
of forward flow allocation (197,249) (133,653)
Collections applied to principal of
receivable portfolios 102,093 95,647
Proceeds from the sale of marketable
securities - -
Proceeds from put-backs and recalls of
receivable portfolios 3,769 3,246
Purchases of property and equipment (1,422) (2,430)
Net cash used in investing activities (95,059) (37,190)
Financing activities
Proceeds from notes payable and other
borrowings 121,000 53,500
Proceeds from convertible note borrowings - -
Proceeds from sale of warrants associated
with convertible notes - -
Purchase of call options associated with
convertible notes - -
Repayment of notes payable and other
borrowings (48,500) (51,250)
Capitalization of loan fees - -
Proceeds from exercise of common stock
options and warrants 348 149
Excess tax benefits from stock-based
payment arrangements 698 768
Net (repayment) borrowing of capital
lease obligations (212) (239)
Net cash provided by financing activities 73,334 2,928
Net (decrease) increase in cash (5,891) 3,765
Cash and cash equivalents, beginning of year 10,791 7,026
Cash and cash equivalents, end of year $4,900 $10,791
(A) Derived from the audited consolidated financial statements.
ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted EBITDA to GAAP Net Income and Operating Expenses,
Excluding Stock-based Compensation Expense, Bankruptcy Servicing Operating
Expenses and Costs Related to the Consideration of Strategic Alternatives to
GAAP Total Operating Expenses
(Unaudited, In Thousands)
Three Months Ended Year Ended
December 31, December 31,
2007 2006 2007 2006
GAAP net income,
as reported $4,848 $6,627 $15,042 $24,008
Interest expense 4,000 3,226 13,904 12,512
Contingent interest
expense - 5,774 4,123 18,520
Pay-off of future
contingent interest - - 11,733 -
Provision for income
taxes 3,376 4,564 8,431 17,180
Depreciation and
amortization 810 1,002 3,351 3,894
Amount applied to
principal on receivable
portfolios 20,826 28,710 102,093 95,647
Stock-based compensation
expense 1,001 1,334 4,287 5,669
Adjusted EBITDA $34,861 $51,237 $162,964 $177,430
GAAP total operating
expenses, as reported $47,411 $48,169 $201,849 $183,529
Stock-based compensation
expense (1,001) (1,334) (4,287) 5,669)
Bankruptcy servicing
operating expenses (3,076) (3,864) (14,801) (18,314)
Costs related to the
consideration of
strategic alternatives - (499) (213) (1,498)
Operating expenses,
excluding stock-based
compensation expense,
bankruptcy servicing
operating expenses and
costs related to the
consideration of
strategic alternatives $43,334 $42,472 $182,548 $158,048
SOURCE Encore Capital Group, Inc. 02/19/2008
CONTACT: Paul Grinberg, +1-858-309-6904,
paul.grinberg@encorecapitalgroup.com, or Ren Zamora, +1-858-560-3598,
ren.zamora@encorecapitalgroup.com, both of Encore Capital Group, Inc.
/Web site: http://www.encorecapitalgroup.com
(ECPG)