Encore Capital Group Announces Fourth Quarter and Full Year 2009 Results and New Revolving Credit Facility
For the fourth quarter of 2009:
- Gross collections were $124.5 million, a 32% increase over the $94.4 million in the same period of the prior year. Excluding portfolio sales, collections were $124.5 million, a 34% increase over the $92.8 million in the same period of the prior year.
- Investment in receivable portfolios was $41.0 million, to purchase $1.0 billion in face value of debt, compared to $63.8 million, to purchase $1.7 billion in face value of debt in the same period of the prior year. Available capacity under the revolving credit facility, subject to borrowing base and applicable debt covenants, was $75.0 million as of December 31, 2009. Total debt, consisting of the revolving credit facility, convertible notes and capital lease obligations, was $303.1 million as of December 31, 2009, consistent with the $303.7 million as of December 31, 2008.
- Revenue from receivable portfolios was $77.0 million, a 61% increase over the $47.9 million in the same period of the prior year. This increase was due largely to the differences in net impairment provisions recorded in each period, as discussed below in additional information. Excluding net impairment provisions, revenue from receivable portfolios increased 12%. Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of impairment provisions, was 66%, compared to 78% in the same period of the prior year.
- Revenue from bankruptcy servicing was $4.5 million, a 12% increase over the $4.0 million in the same period of the prior year.
- Total operating expenses were $64.6 million, a 19% increase over the $54.2 million in the same period of the prior year. Operating expense (excluding stock-based compensation expense and bankruptcy servicing operating expenses) per dollar collected decreased to 48.5%, compared to 53.6% 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 $66.1 million, a 34% increase over the $49.3 million in the same period of the prior year.
- Total interest expense was $4.0 million, compared to $5.4 million in the same period of the prior year.
- Net income was $8.4 million, or $0.34 per fully diluted share, compared to a net loss of $2.1 million, or $0.09 per fully diluted share in the same period of 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 $9.23 as of December 31, 2009, a 17% increase over $7.86 as of December 31, 2008.
For the full year of 2009:
- Gross collections were $487.8 million, a 22% increase over the $398.6 million in 2008.
- Total revenue was $316.4 million, a 24% increase over the $255.9 million in 2008.
- Total operating expenses were $249.8 million, a 15% increase over the $216.9 million in 2008. Operating expense (excluding stock-based compensation expense and bankruptcy servicing operating expenses) per dollar collected decreased to 47.6% compared to 50.2% in 2008.
- Adjusted EBITDA was $264.6 million, a 27% increase over the $208.0 million in 2008.
- Net income was $33.0 million, or $1.37 per fully diluted share, compared to net income of $13.8 million or $0.59 per fully diluted share in 2008.
Additional information:
Certain events affected the comparability of 2009 versus 2008 quarterly and annual results, as outlined below. For a more detailed comparison of 2009 versus 2008 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, 2009.
- In the fourth quarter of 2009, the Company recorded a net impairment provision of $5.0 million, compared to a net impairment provision of $25.4 million in the same period of the prior year. For the full year of 2009, the Company recorded a net impairment provision of $19.3 million, compared to a net impairment provision of $41.4 million in the prior year.
- For the full year of 2009, the Company expensed $43.6 million in upfront court costs, compared to $38.5 million in the prior year.
- In 2009, the Company repurchased $28.5 million principal amount of its outstanding convertible notes, for a total price of $22.3 million, plus accrued interest. These repurchases resulted in a gain of $3.3 million. In 2008, the Company repurchased $28.6 million principal amount of its outstanding convertible notes, for a total price of $20.1 million, plus accrued interest. These repurchases resulted in a net gain of $4.8 million.
- For the full year of 2009, general and administrative expenses increased by $7.5 million, to $26.9 million, compared to $19.4 million in the prior year. The increase was primarily the result of an increase of $5.3 million in corporate legal expenses related primarily to our settled Jefferson Capital arbitration and other ongoing litigation, an increase of $1.2 million in corporate settlements and an increase of $0.9 million in building rent, primarily in India, where we incurred rental charges at two locations, as we built out a larger site.
New Revolving Credit Facility
Separately, the Company announced that it has entered into a new $327.5 million, three-year revolving credit facility that expires in May 2013. Importantly, the new facility contains an accordion feature, which allows the Company to request an increase in the facility by up to $100.0 million, not to exceed a total facility of $427.5 million. The new facility replaces the Company's pre-existing $335.0 million revolving credit agreement that was scheduled to expire in May 2010. JPMorgan Chase Bank acted as administrative agent as well as a lender under the new agreement. Bank of America acted as syndication agent as well as a lender. The facility also includes Fifth Third, SunTrust, Morgan Stanley, California Bank & Trust and Citibank, among other lenders.
Borrowings under the new facility bear interest at either LIBOR, plus a spread that ranges from 375 to 425 basis points, depending on the Company's leverage, or an alternate base rate, which can be based on, among several choices, the prime rate plus a spread that ranges from 250 to 300 basis points.
Several terms of the new facility offer more flexible financial covenants, including a borrowing base equal to 30% of eligible estimated remaining collections, an annual capital expenditure maximum of $12.5 million, increased from $6.0 million, an annual rental expense maximum of $12.5 million, increased from $5.0 million, an outstanding capital lease maximum of $12.5 million, increased from $5.0 million, an acquisition limit of $100.0 million, increased from $60.0 million and the renewed ability to repurchase up to $50.0 million in any combination of the Company's common stock and convertible notes.
"In this challenging credit environment, we are pleased to have renewed the facility at $327.5 million with additional flexibility. We are enthusiastic about the addition of several strong banks to our syndicate and we look forward to the opportunity to expand the facility by $100.0 million, as our Company continues to grow," said Paul Grinberg, Executive Vice President and Chief Financial Officer. "Most importantly, we appreciate the support of our lending partners and their commitment to our business."
Securities Repurchase Program
The Company also announced that its Board of Directors has authorized a new securities repurchase program which replaces the previous program originally established in February 2007. Under the new program, the Company may buy back up to $50.0 million of a combination of its common stock and convertible notes. The purchases may be made from time to time in the open market or through privately negotiated transactions and will be dependent upon various business and financial considerations. Securities' repurchases are subject to compliance with applicable legal requirements and other factors.
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 and bankruptcy servicing operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented. The Company has included information concerning tangible book value per share because management believes that this metric is a meaningful measure that reflects the equity deployed in the business. 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. Adjusted EBITDA, operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses, and tangible book value per share have not been prepared in accordance with U.S. 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, a reconciliation of operating expenses excluding stock-based compensation expense and bankruptcy servicing operating 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, Inc. is a systems-driven purchaser and manager of charged-off consumer receivables portfolios. More information on the Company can be found at www.encorecapitalgroup.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 future operating results and growth, ability to expand and utilize flexibility under our new credit facility, and the repurchase of our securities. 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@encorecapitalgroup.com
or
Ren Zamora (858) 560-3598
ren.zamora@encorecapitalgroup.com
FINANCIAL TABLES FOLLOW
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
December 31, December 31,
2009 2008
---- ----
Adjusted
--------
Assets
Cash and cash equivalents $8,388 $10,341
Accounts receivable, net 3,134 1,757
Investment in receivable portfolios, net 526,877 461,346
Deferred court costs 25,957 28,335
Property and equipment, net 9,427 6,290
Prepaid income tax - 7,935
Forward flow asset - 10,302
Other assets 4,252 5,049
Goodwill 15,985 15,985
Identifiable intangible assets, net 1,139 1,739
----- -----
Total assets $595,159 $549,079
======== ========
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued liabilities $21,815 $18,204
Income taxes payable 2,681 -
Deferred tax liabilities, net 16,980 15,108
Deferred revenue and purchased servicing
obligation 5,481 5,203
Debt 303,075 303,655
Other liabilities 2,036 3,483
----- -----
Total liabilities 352,068 345,653
------- -------
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, 23,359 shares and 23,053
shares issued and outstanding as of
December 31, 2009 and 2008, respectively 234 231
Additional paid-in capital 104,261 98,521
Accumulated earnings 139,842 106,795
Accumulated other comprehensive loss (1,246) (2,121)
------ ------
Total stockholders' equity 243,091 203,426
------- -------
Total liabilities and stockholders'
equity $595,159 $549,079
======== ========
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
Adjusted Adjusted
-------- --------
Revenue
Revenue from receivable
portfolios, net $77,044 $47,902 $299,732 $240,802
Servicing fees and other
related revenue 4,508 4,040 16,687 15,087
----- ----- ------ ------
Total revenue 81,552 51,942 316,419 255,889
------ ------ ------- -------
Operating expenses
Salaries and employee
benefits (excluding stock-
based compensation
expense) 14,895 12,617 58,025 58,120
Stock-based compensation
expense 1,049 382 4,384 3,564
Cost of legal collections 27,905 26,662 112,570 96,187
Other operating expenses 7,401 5,996 26,013 23,652
Collection agency
commissions 5,795 2,310 19,278 13,118
General and administrative
expenses 6,846 5,540 26,920 19,445
Depreciation and
amortization 697 652 2,592 2,814
--- --- ----- -----
Total operating
expenses 64,588 54,159 249,782 216,900
------ ------ ------- -------
Income before other
(expense) income and
income taxes 16,964 (2,217) 66,637 38,989
------ ------ ------ ------
Other (expense) income
Interest expense (3,959) (5,401) (16,160) (20,572)
Gain on repurchase of
convertible notes, net - 4,064 3,268 4,771
Other income (expense) 9 17 (2) 358
--- --- --- ---
Total other expense (3,950) (1,320) (12,894) (15,443)
------ ------ ------- -------
Income (loss) before income
taxes 13,014 (3,537) 53,743 23,546
(Provision for) benefit
from income taxes (4,609) 1,442 (20,696) (9,700)
------ ----- ------- ------
Net income (loss) $8,405 ($2,095) $33,047 $13,846
====== ======= ======= =======
Weighted average shares
outstanding:
Basic 23,341 23,094 23,215 23,046
Diluted 24,484 23,632 24,082 23,577
Earnings (loss) per share:
Basic $0.36 ($0.09) $1.42 $0.60
Diluted $0.34 ($0.09) $1.37 $0.59
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(In Thousands)
Year Ended December 31,
-----------------------
2009 2008
---- ----
Adjusted
--------
Operating activities:
Net Income $33,047 $13,846
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,592 2,814
Amortization of loan costs and debt
discount 4,080 6,320
Stock-based compensation expense 4,384 3,564
Gain on repurchase of convertible notes,
net (3,268) (4,771)
Deferred income tax expense 1,872 1,642
Excess tax benefit from stock-based
payment arrangements (729) -
Provision for impairment on receivable
portfolios, net 19,310 41,400
Changes in operating assets and
liabilities
Other assets (1,668) 4,135
Deferred court costs 2,379 (7,803)
Prepaid income tax and income taxes
payable 11,204 2,095
Deferred revenue and purchased service
obligation 278 1,305
Accounts payable, accrued liabilities and
other liabilities 2,635 (1,476)
----- ------
Net cash provided by operating activities 76,116 63,071
------ ------
Investing activities:
Purchases of receivable portfolios, net
of forward flow allocation (246,330) (224,717)
Collections applied to investment in
receivable portfolios, net 168,416 116,101
Proceeds from put-backs of receivable
portfolios 3,375 3,640
Purchases of property and equipment (4,632) (2,276)
------ ------
Net cash used in investing activities (79,171) (107,252)
------- --------
Financing activities:
Proceeds from notes payable and other
borrowings 90,500 108,000
Repayment of notes payable and other
borrowings (68,500) (42,169)
Repurchase of convertible notes (22,262) (20,101)
Proceeds from exercise of stock options 1,175 23
Excess tax benefit from stock-based
payment arrangements 729 -
Proceeds from capital lease - 400
Repayment of capital lease obligations (540) (307)
---- ----
Net cash provided by financing activities 1,102 45,846
----- ------
Net increase (decrease) in cash (1,953) 1,665
Cash and cash equivalents, beginning of
period 10,341 8,676
------ -----
Cash and cash equivalents, end of period $8,388 $10,341
====== =======
Supplemental disclosures of cash flow
information:
Cash paid for interest $12,521 $14,427
Cash paid for income taxes $8,243 $5,301
Supplemental schedule of non-cash
investing and financing activities:
Fixed assets acquired through capital
lease $516 $1,602
Allocation of forward flow asset to
acquired receivable portfolios $10,302 $5,561
ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted EBITDA to GAAP Net Income, Operating Expenses,
Excluding Stock-based Compensation Expense and Bankruptcy Servicing
Operating Expenses to GAAP Total Operating Expenses, and Tangible
Book Value Per Share to GAAP Total Stockholders' Equity
(Unaudited, In Thousands, Except Per Share Amounts)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
Adjusted Adjusted
-------- --------
GAAP net income (loss), as
reported $8,405 ($2,095) $33,047 $13,846
Interest expense 3,959 5,401 16,160 20,572
Provision for (benefit from)
income taxes 4,609 (1,442) 20,696 9,700
Depreciation and amortization 697 652 2,592 2,814
Amount applied to principal
on receivable portfolios 47,384 46,364 187,726 157,501
Stock-based compensation
expense 1,049 382 4,384 3,564
----- --- ----- -----
Adjusted EBITDA $66,103 $49,262 $264,605 $207,997
======= ======= ======== ========
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
Adjusted Adjusted
-------- --------
GAAP total operating
expenses, as reported $64,588 $54,159 $249,782 $216,900
Stock-based compensation
expense (1,049) (382) (4,384) (3,564)
Bankruptcy servicing
operating expenses (3,140) (3,192) (13,218) (13,369)
------ ------ ------- -------
Operating expenses,
excluding stock-based
compensation expense and
bankruptcy servicing
operating expenses $60,399 $50,585 $232,180 $199,967
======= ======= ======== ========
As of As of
December 31, December 31,
2009 2008
---- ----
Adjusted
--------
GAAP total stockholders' equity, as
reported $243,091 $203,426
Goodwill (15,985) (15,985)
Identifiable intangible assets, net (1,139) (1,739)
------ ------
Tangible book value $225,967 $185,702
Diluted shares outstanding 24,484 23,632
------ ------
Tangible book value per share $9.23 $7.86
SOURCE Encore Capital Group, Inc.