Encore Capital Group Announces Second Quarter 2008 Results
SAN DIEGO, Aug. 4 /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, 2008.
For the second quarter of 2008:
-- Gross collections were $102.1 million, a 9% increase over the $93.6 million in the same period of the prior year.
-- Investments in receivable portfolios were $52.5 million, to purchase $1.8 billion in face value of debt, compared to $41.1 million, to purchase $1.3 billion in face value of debt in the same period of the prior year.
-- Revenues from receivable portfolios were $66.3 million, a 4% increase over the $64.0 million in the same period of the prior year. Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of impairment provisions, was 68%, compared to 67% in the same period of the prior year.
-- Revenues from bankruptcy servicing were $3.7 million, compared to $3.2 million in the same period of the prior year.
-- Total operating expenses were $55.9 million, a 6% increase over the $52.6 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 decreased to 50.0% compared to 50.5% 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 $53.7 million, a 17% increase over the $46.1 million in the same period of the prior year.
-- Total interest expense was $3.6 million, compared to $16.0 million in the same period of the prior year.
-- Net income was $7.3 million or $0.31 per fully diluted share, compared to a net loss of $0.8 million or $0.04 per fully diluted share in the same period of the prior year.
Additional information:
Certain events affected the comparability of 2008 versus 2007 quarterly results, as outlined below. For a more detailed comparison of 2008 versus 2007 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, 2008.
-- In the second quarter of 2008, the Company recorded a net impairment provision of $3.4 million, compared to an impairment reversal of $1.0 million in the same period of the prior year.
-- In the second quarter of 2008, the Company repurchased $5.0 million principal amount of its outstanding convertible senior notes, for a total price of $3.5 million, plus accrued interest. This repurchase resulted in a net gain of $1.4 million.
-- In the second quarter of 2007, approximately $11.7 million of total interest expense was attributable to the agreement reached with the Company's previous lender to pay off all future contingent interest payments.
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)
(Unaudited)
June December
30, 31,
2008 2007
Assets
Cash and cash equivalents $5,047 $4,900
Restricted cash 3,649 3,776
Accounts receivable, net 3,588 4,136
Investment in receivable portfolios, net 414,559 392,209
Deferred court costs 25,155 20,533
Property and equipment, net 5,344 4,390
Prepaid income tax 1,518 10,346
Forward flow asset 10,302 15,863
Other assets 8,180 8,800
Goodwill 15,985 15,985
Identifiable intangible assets, net 2,148 2,557
Total assets $495,475 $483,495
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued liabilities $20,156 $20,346
Deferred tax liabilities, net 13,659 13,669
Deferred revenue and purchased servicing
obligation 4,370 3,898
Debt 265,635 272,420
Other liabilities 1,668 1,642
Total liabilities 305,488 311,975
Commitments, 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, 23,016 shares and 22,992 shares
issued and outstanding as of June 30, 2008,
and December 31, 2007, respectively 230 230
Additional paid-in capital 76,963 73,310
Accumulated earnings 113,805 98,975
Accumulated other comprehensive loss (1,011) (995)
Total stockholders' equity 189,987 171,520
Total liabilities and stockholders' equity $495,475 $483,495
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,
2008 2007 2008 2007
Revenues
Revenue from receivable
portfolios, net $66,275 $64,021 $130,343 $126,174
Servicing fees and other related
revenue 3,745 3,207 7,231 6,429
Total revenues 70,020 67,228 137,574 132,603
Operating expenses
Salaries and employee benefits
(excluding stock-based
compensation expense) 15,689 16,064 30,540 33,250
Stock-based compensation expense 1,228 1,204 2,322 2,005
Cost of legal collections 23,829 21,159 44,135 38,780
Other operating expenses 5,987 6,239 11,638 11,983
Collection agency commissions 3,781 2,867 7,812 6,161
General and administrative expenses 4,581 4,232 9,041 8,503
Depreciation and amortization 766 840 1,488 1,709
Total operating expenses 55,861 52,605 106,976 102,391
Income before other (expense)
income and income taxes 14,159 14,623 30,598 30,212
Other (expense) income
Interest expense (3,583) (3,336) (7,529) (6,256)
Contingent interest expense - (888) - (4,123)
Pay-off of future contingent
interest - (11,733) - (11,733)
Gain on repurchase of
convertible notes, net 1,417 - 1,417 -
Other income (expense) 352 (42) 373 74
Total other expense (1,814) (15,999) (5,739) (22,038)
Income (loss) before income taxes 12,345 (1,376) 24,859 8,174
(Provision) benefit for income taxes (5,015) 555 (10,029) (3,338)
Net income (loss) $7,330 $(821) $14,830 $4,836
Weighted average shares outstanding:
Basic 23,007 22,803 23,000 22,794
Diluted 23,512 22,803 23,468 23,388
Earnings (loss) per share:
Basic $0.32 $(0.04) $0.64 $0.21
Diluted $0.31 $(0.04) $0.63 $0.21
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
Six Months Ended
June 30,
2008 2007
Operating activities
Gross collections $206,485 $184,152
Amounts collected on behalf of third parties (145) (266)
Amounts applied to principal on receivable
portfolios (75,997) (57,711)
Provision for impairment (reversal) 8,725 (1,263)
Servicing fees 61 64
Operating expenses (99,572) (100,744)
Interest payments (6,792) (6,010)
Contingent interest payments - (22,724)
Other income 373 74
Decrease in restricted cash 127 718
Income tax refund (payments) 236 (5,362)
Tax provision (benefit) from stock-based payment
arrangements 12 (123)
Net cash provided by (used in)
operating activities 33,513 (9,195)
Investing activities
Purchases of receivable portfolios, net of
forward flow allocation (94,833) (80,035)
Collections applied to investment in receivable
portfolios 67,272 58,974
Proceeds from put-backs of receivable portfolios 2,047 1,574
Purchases of property and equipment (2,034) (878)
Net cash used in investing activities (27,548) (20,365)
Financing activities
Proceeds from notes payable and other borrowings 15,000 27,000
Repayment of notes payable and other borrowings (17,169) (4,000)
Repurchase of convertible notes (3,500) -
Proceeds from exercise of stock options 8 263
Tax (provision) benefit from stock-based payment
arrangements (12) 123
Repayment of capital lease obligations (145) (122)
Net cash (used in) provided by financing
activities (5,818) 23,264
Net increase (decrease) in cash 147 (6,296)
Cash and cash equivalents, beginning of period 4,900 10,791
Cash and cash equivalents, end of period $5,047 $4,495
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
June 30,
2008 2007
GAAP net income (loss), as reported $7,330 $(821)
Interest expense 3,583 3,336
Contingent interest expense - 888
Pay-off of future contingent interest - 11,733
Provision (benefit) for income taxes 5,015 (555)
Depreciation and amortization 766 840
Amount applied to principal on receivable portfolios 35,785 29,452
Stock-based compensation expense 1,228 1,204
Adjusted EBITDA $53,707 $46,077
GAAP total operating expenses, as reported $55,861 $52,605
Stock-based compensation expense (1,228) (1,204)
Bankruptcy servicing operating expenses (3,576) (4,006)
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 $51,057 $47,298
SOURCE Encore Capital Group, Inc.-0- 08/04/2008
/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)