Encore Capital Group Announces Record Net Income for Second Quarter 2010 and Increased Revolving Credit Facility
SAN DIEGO, Aug 02, 2010 /PRNewswire via COMTEX/ --
Encore Capital Group, Inc. (Nasdaq: ECPG), a leading distressed consumer debt management company, today reported consolidated financial results for the second quarter ended June 30, 2010.
For the second quarter of 2010:
- Gross collections were $156.8 million, a 28% increase over the $122.4 million in the same period of the prior year.
- Investment in receivable portfolios was $83.3 million, to purchase $2.2 billion in face value of debt, compared to $82.0 million, to purchase $1.9 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 $45.5 million as of June 30, 2010. Total debt, consisting of the revolving credit facility, convertible senior notes and capital lease obligations, was $328.7 million as of June 30, 2010, an increase of 8% from $303.1 million as of December 31, 2009.
- Revenue from receivable portfolios, net was $91.8 million, a 24% increase over the $74.0 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 60%, compared to 64% in the same period of the prior year.
- Revenue from bankruptcy servicing was $4.4 million, an 8% increase over the $4.1 million in the same period of the prior year.
- Total operating expenses were $72.8 million, a 15% increase over the $63.5 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 43.4% compared to 48.3% 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 $90.5 million, a 40% increase over the $64.7 million in the same period of the prior year.
- Total interest expense was $4.9 million, compared to $4.0 million in the same period of the prior year.
- Net income was $11.7 million or $0.47 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.
- 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 $10.23 as of June 30, 2010, an 11% increase over $9.23 as of December 31, 2009.
Additional Financial Information:
Certain events affected the comparability of 2010 versus 2009 quarterly results, as outlined below. For a more detailed comparison of 2010 versus 2009 results, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.
- In the second quarter of 2010, the Company recorded net portfolio allowances of $2.8 million, compared to $4.6 million in the same period of the prior year.
- In the second quarter of 2010, the Company expensed $11.4 million in upfront court costs, compared to $10.6 million in the same period of the prior year.
- In the second quarter of 2009, the Company repurchased $2.9 million principal amount of its outstanding convertible senior notes, for a total price of $2.4 million, plus accrued interest. These repurchases resulted in a gain of $0.2 million or $0.01 per fully diluted share.
Increased Revolving Credit Facility
Separately, the Company announced today that on July 15, 2010, it obtained an additional $33.0 million in commitments from lenders and exercised a portion of its $100.0 million accordion feature. The Company thereby increased its revolving credit facility to $360.5 million from $327.5 million, leaving $67.0 million available under the accordion feature. Upon exercise of the accordion, there was $78.5 million in available capacity under the facility, subject to borrowing base and applicable debt covenants.
Conference Call and Webcast
The Company will hold a conference call today at 2:00 P.M. Pacific time / 5:00 P.M. Eastern time to discuss second quarter results. Members of the public are invited to listen to the live conference call via the Internet.
To hear the presentation, log on at the Investor Relations page of the Company's website at www.encorecapitalgroup.com. For those who cannot listen to the live broadcast, a replay of the conference call will be available shortly after the call at the same location.
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 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.
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)
(Unaudited)
December
June 30, 31,
2010 2009
---- ----
Assets
Cash and cash equivalents $10,402 $8,388
Accounts receivable, net 2,478 3,134
Investment in receivable portfolios, net 566,815 526,877
Deferred court costs 25,954 25,957
Property and equipment, net 11,234 9,427
Prepaid income tax 2,039 -
Other assets 9,793 4,252
Goodwill 15,985 15,985
Identifiable intangible assets, net 943 1,139
--
Total assets $645,643 $595,159
======== ========
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued liabilities $22,028 $21,815
Income taxes payable - 2,681
Deferred tax liabilities, net 16,958 16,980
Deferred revenue 4,808 5,481
Debt 328,656 303,075
Other liabilities 1,066 2,036
-- --
Total liabilities 373,516 352,068
---- ----
Commitments and contingencies and subsequent
events
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, 23,785 shares and 238 234
23,359 shares issued and outstanding as of
June 30, 2010 and
December 31, 2009, respectively
Additional paid-in capital 110,117 104,261
Accumulated earnings 162,433 139,842
Accumulated other comprehensive loss (661) (1,246)
---- ------
Total stockholders' equity 272,127 243,091
---- ----
Total liabilities and stockholders' equity $645,643 $595,159
======== ========
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2010 2009 2010 2009
-- -- -- --
Revenue
Revenue from receivable
portfolios, net $91,845 $73,965 $174,752 $146,240
Servicing fees and
other related revenue 4,386 4,070 8,817 8,241
----- ----- ----- -----
Total revenue 96,231 78,035 183,569 154,481
---- ---- ----- -----
Operating expenses
Salaries and employee
benefits (excluding
stock-based
compensation expense) 16,484 14,762 31,969 28,719
Stock-based
compensation expense 1,446 994 3,207 2,074
Cost of legal
collections 31,235 28,626 57,668 58,573
Other operating
expenses 9,027 6,598 18,141 12,578
Collection agency
commissions 6,413 4,797 11,709 7,688
General and
administrative
expenses 7,425 7,097 14,304 12,794
Depreciation and
amortization 752 620 1,425 1,243
--- --- ----- -----
Total operating
expenses 72,782 63,494 138,423 123,669
------ ------ ------- -------
Income before other
(expense) income and
income taxes 23,449 14,541 45,146 30,812
------ ------ ------ ------
Other (expense) income
Interest expense (4,880) (3,958) (9,418) (8,231)
Gain on repurchase of
convertible notes, net - 215 - 3,268
Other (expense) income (90) 9 102 (72)
--- - - ---
Total other expense (4,970) (3,734) (9,316) (5,035)
------ ------ ------ ------
Income before income
taxes 18,479 10,807 35,830 25,777
Provision for income
taxes (6,749) (4,166) (13,239) (10,139)
------ ------ ------- -------
Net income $11,730 $6,641 $22,591 $15,638
======= ====== ======= =======
Weighted average shares
outstanding:
Basic 23,713 23,168 23,673 23,145
Diluted 24,958 23,971 24,897 23,811
Earnings per share:
Basic $0.49 $0.29 $0.95 $0.68
Diluted $0.47 $0.28 $0.91 $0.66
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
Six Months Ended
June 30,
--------
2010 2009
-- --
Operating activities:
Net income $22,591 $15,638
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,425 1,243
Amortization of loan costs and debt discount 2,194 2,160
Stock-based compensation expense 3,207 2,074
Gain on repurchase of convertible notes, net - (3,268)
Deferred income tax expense (22) 360
Excess tax benefit from stock-based payment
arrangements (1,813) (28)
Provision for allowances on receivable
portfolios, net 10,720 9,991
Changes in operating assets and liabilities
Other assets 39 (2,456)
Deferred court costs 3 (1,425)
Prepaid income tax and income taxes payable (3,027) 8,577
Deferred revenue (673) 197
Accounts payable, accrued liabilities and
other liabilities (1,072) 611
------ ---
Net cash provided by operating activities 33,572 33,674
---- ----
Investing activities:
Purchases of receivable portfolios (164,968) (137,946)
Collections applied to investment in
receivable portfolios, net 112,446 81,163
Proceeds from put-backs of receivable
portfolios 1,864 1,430
Purchases of property and equipment (1,647) (1,400)
------ ------
Net cash used in investing activities (52,305) (56,753)
------- -------
Financing activities:
Payment of loan costs (4,660) -
Proceeds from revolving credit facility 53,000 62,500
Repayment of revolving credit facility (31,000) (21,500)
Repurchase of convertible notes - (22,262)
Proceeds from net settlement of certain call
options 524 -
Proceeds from exercise of stock options 1,688 29
Excess tax benefit from stock-based payment
arrangements 1,813 28
Repayment of capital lease obligations (618) (122)
Net cash provided by financing activities 20,747 18,673
---- ----
Net increase (decrease) in cash and cash
equivalents 2,014 (4,406)
Cash and cash equivalents, beginning of
period 8,388 10,341
----- ------
Cash and cash equivalents, end of period $10,402 $5,935
======= ======
Supplemental disclosures of cash flow
information:
Cash paid for interest $6,994 $6,435
Cash paid for income taxes $16,544 $1,626
Supplemental schedule of non-cash investing
and financing activities:
Fixed assets acquired through capital lease $1,389 $-
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
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
June 30,
--------
2010 2009
-- --
GAAP net income, as reported $11,730 $6,641
Interest expense 4,880 3,958
Provision for income taxes 6,749 4,166
Depreciation and amortization 752 620
Amount applied to principal on receivable
portfolios 64,901 48,303
Stock-based compensation expense 1,446 994
--- -
Adjusted EBITDA $90,458 $64,682
===== =====
Three Months Ended
June 30,
--------
2010 2009
-- --
GAAP total operating expenses, as reported $72,782 $63,494
Stock-based compensation expense (1,446) (994)
Bankruptcy servicing operating expenses (3,300) (3,454)
------ ------
Operating expenses, excluding stock-based
compensation expense and $68,036 $59,046
bankruptcy servicing operating expenses ======= =======
As of As of
June 30,
2010 December 31,
--------- 2009
----
GAAP total stockholders' equity, as reported $272,127 $243,091
Goodwill (15,985) (15,985)
Identifiable intangible assets, net (943) (1,139)
---- ------
Tangible book value $255,199 $225,967
Diluted shares outstanding 24,958 24,484
----- ----
Tangible book value per share $10.23 $9.23
SOURCE Encore Capital Group, Inc.