Encore Capital Group Announces Second Quarter 2007 Results

August 8, 2007 at 4:07 PM EDT

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)