Encore Capital Group Announces Second Quarter 2007 Results
SAN DIEGO, Aug. 8 /PRNewswire-FirstCall/ -- 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, 2007.
For the second quarter of 2007:
-- Net loss was $0.8 million or $0.04 per fully diluted share, compared to
net income of $7.5 million or $0.32 per fully diluted share in the same
period of the prior year. The loss includes the one-time impact of a
$6.9 million, or $0.30 per fully diluted share, after-tax charge
related to the agreement reached with the Company's previous lender to
pay off all future contingent interest.
-- Adjusted EBITDA, defined as net income before interest, taxes,
depreciation and amortization, stock-based compensation expense, and
portfolio amortization, was $47.1 million, a 10% increase over the
$42.8 million in the same period of the prior year.
-- Gross collections were $93.6 million, an 18% increase over the $79.2
million in the same period of the prior year.
-- Revenues from receivable portfolios were $64.0 million, a 7% increase
over the $59.6 million in the same period of the prior year. Revenue
recognized on receivable portfolios, as a percentage of portfolio
collections, was 68%, compared to 75% in the same period of the prior
year. The lower revenue recognition rate was attributable to a higher
percentage of collections from more recently purchased portfolios that
have lower collection multiples assigned to them, as well as a higher
level of collections in the second quarter of 2007 than in the same
period of the prior year.
-- Revenues from bankruptcy servicing were $3.2 million, compared to $6.2
million in the same period of the prior year. The decrease in revenues
from bankruptcy servicing is attributable to the one-time spike in
bankruptcy placements leading up to bankruptcy reform in 2005, which
were recognized in revenue in the second quarter of 2006. Revenues
from bankruptcy servicing for the first quarter of 2007 were also $3.2
million.
-- Operating expense (excluding stock-based compensation expense,
bankruptcy servicing operating expenses and the final costs related to
the consideration of strategic alternatives) per dollar collected
increased to 50.5% compared to 49.5% in the same period of the prior
year. This increase was primarily attributable to the increase in
legal costs associated with the Company's newer collection initiatives.
Total operating expenses were $52.6 million, a 15% increase over the
$45.7 million in the same period of the prior year.
-- Total interest expense was $16.0 million, compared to $7.3 million in
the same period of the prior year. Approximately $11.7 million of the
total interest expense in the second quarter of 2007 is attributable to
the agreement reached with the Company's previous lender to pay off all
future contingent interest payments.
-- Investments in receivable portfolios were $41.1 million to purchase
$1.3 billion in face value of debt, compared to $21.3 million to
purchase $594 million in face value of debt in the same period of the
prior year.
Conference Call and Webcast
The Company will hold a conference call today at 2:00 PM 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 web site at http://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, 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
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
June 30, December 31,
2007 2006 (A)
(Unaudited)
Assets
Cash and cash equivalents $4,495 $10,791
Restricted cash 3,942 4,660
Accounts receivable, net 3,768 2,599
Investment in receivable portfolios, net 327,586 300,348
Property and equipment, net 4,954 5,249
Prepaid income tax 8,079 3,727
Purchased servicing asset 528 1,132
Forward flow asset 21,078 27,566
Other assets 25,618 21,903
Goodwill 13,735 13,735
Identifiable intangible assets, net 3,092 3,628
Total assets $416,875 $395,338
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued liabilities $18,752 $23,744
Accrued profit sharing arrangement - 6,869
Deferred tax liabilities, net 12,491 10,667
Deferred revenue 2,636 2,156
Purchased servicing obligation 312 634
Debt 223,009 200,132
Total liabilities 257,200 244,202
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, 22,829 shares and 22,781 shares
issued and outstanding as of June 30, 2007
and December 31, 2006, respectively 228 228
Additional paid-in capital 69,678 66,532
Accumulated earnings 88,769 83,933
Accumulated other comprehensive income 1,000 443
Total stockholders' equity 159,675 151,136
Total liabilities and
stockholders' equity $416,875 $395,338
(A) Derived from the audited consolidated financial statements as of
December 31, 2006.
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three months ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Revenues
Revenue from receivable
portfolios, net $64,021 $59,604 $126,174 $117,178
Servicing fees and
other related revenue 3,207 6,329 6,429 9,235
Total revenues 67,228 65,933 132,603 126,413
Operating expenses
Salaries and employee
benefits 16,064 16,306 33,250 32,585
Stock-based
compensation expense 1,204 1,464 2,005 2,845
Cost of legal
collections 21,159 12,944 38,780 24,222
Other operating
expenses 6,239 5,655 11,983 12,101
Collection agency
commissions 2,867 5,032 6,161 9,645
General and
administrative
expenses 4,232 3,300 8,503 7,033
Depreciation and
amortization 840 968 1,709 1,928
Total operating
expenses 52,605 45,669 102,391 90,359
Income before other
income (expense) and
income taxes 14,623 20,264 30,212 36,054
Other income (expense)
Interest expense (3,336) (3,102) (6,256) (6,367)
Contingent interest
expense (888) (4,235) (4,123) (8,921)
Pay-off of future
contingent
interest (11,733) - (11,733) -
Other (expense)
income (42) 284 74 334
Total other
expense (15,999) (7,053) (22,038) (14,954)
Income before income
taxes (1,376) 13,211 8,174 21,100
Benefit (provision)
for income taxes 555 (5,716) (3,338) (8,927)
Net (loss) income $(821) $7,495 $4,836 $12,173
Basic - (loss) earnings per share computation:
Net (loss) income
available to
common stockholders $(821) $7,495 $4,836 $12,173
Weighted average
shares outstanding 22,801 22,776 22,792 22,729
(Loss) earnings
per share - Basic $(0.04) $0.33 $0.21 $0.54
Diluted - (loss) earnings per share computation:
Net (loss) income
available to common
stockholders $(821) $7,495 $4,836 $12,173
Weighted average
shares outstanding 22,803 22,776 22,794 22,729
Incremental shares
from assumed
conversion of
stock options - 615 594 663
Diluted weighted
average shares
outstanding 22,803 23,391 23,388 23,392
(Loss) earnings
per share -
Diluted $(0.04) $0.32 $0.21 $0.52
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
Six Months Ended
June 30,
2007 2006
Operating activities
Gross collections $184,152 $166,802
Less:
Amounts collected on behalf of third parties (266) (351)
Amounts applied to principal on receivable
portfolios (58,974) (49,411)
Servicing fees 64 99
Operating expenses (100,744) (81,201)
Interest payments (6,010) (6,095)
Contingent interest payments (22,724) (12,601)
Other income 74 334
Decrease in restricted cash 718 185
Income taxes (5,362) (863)
Excess tax benefits from stock-based
payment arrangements (123) (749)
Net cash (used in) provided by
operating activities (9,195) 16,149
Investing activities
Purchases of receivable portfolios,
net of forward flow allocation (80,035) (43,842)
Collections applied to principal of
receivable portfolios 58,974 49,411
Proceeds from put-backs of receivable
portfolios 1,574 1,984
Purchases of property and equipment (878) (790)
Net cash (used in) provided by
investing activities (20,365) 6,763
Financing activities
Proceeds from notes payable and
other borrowings 27,000 4,500
Repayment of notes payable and
other borrowings (4,000) (25,134)
Proceeds from exercise of common
stock options 263 144
Excess tax benefits from stock-based
payment arrangements 123 749
Repayment of capital lease obligations (122) (119)
Net cash provided by (used in)
financing activities 23,264 (19,860)
Net (decrease) increase in cash (6,296) 3,052
Cash and cash equivalents,
beginning of period 10,791 7,026
Cash and cash equivalents, end of period $4,495 $10,078
ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted EBITDA to GAAP Net (Loss) Income and Operating
Expenses, Excluding Stock Option 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
June 30,
2007 2006
GAAP net (loss) income, as reported $(821) $7,495
Interest expense 3,336 3,102
Contingent interest expense 888 4,235
Pay-off of future contingent interest 11,733 -
Provision (benefit) for income taxes (555) 5,716
Depreciation and amortization 840 968
Amount applied to principal on receivable
portfolios 30,498 19,832
Stock-based compensation expense 1,204 1,464
Adjusted EBITDA $47,123 $42,812
GAAP total operating expenses, as reported $52,605 $45,669
Stock-based compensation expense (1,204) (1,464)
Bankruptcy servicing operating expenses (4,006) (4,973)
Costs related to the consideration of
strategic alternatives (97) -
Operating expenses, excluding stock-based
compensation expense, bankruptcy servicing
operating expenses and costs related to the
consideration of strategic alternatives $47,298 $39,232
SOURCE Encore Capital Group, Inc.08/08/2007
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)