Encore Capital Group Announces Third Quarter 2007 Results
SAN DIEGO, Oct. 25 /PRNewswire-FirstCall/ -- Encore Capital Group, Inc. (Nasdaq: ECPG), a leading distressed consumer debt management company, today reported consolidated financial results for the third quarter ended September 30, 2007.
For the third quarter of 2007:
-- Net income was $5.4 million or $0.23 per fully diluted share, compared
to net income of $5.2 million or $0.22 per fully diluted share in the
same period of the prior year. Net income was reduced by the one-time
impact of $2.1 million after-tax, or $0.09 per fully diluted share,
related to the cost savings initiatives announced in September,
including the reduction in workforce at certain sites and the exit of
healthcare purchasing and collection activities. Net income includes
the positive impact of a reduction in the Company's effective tax rate
by 15.2%, or $0.05 per fully diluted share, primarily due to certain
beneficial changes to the Company's effective State tax rate.
-- Adjusted EBITDA, defined as net income before interest, taxes,
depreciation and amortization, stock-based compensation expense, and
portfolio amortization, was $35.1 million, a 1% decrease compared to
$35.6 million in the same period of the prior year. Excluding the
$2.8 million in charges associated with the cost savings initiatives,
Adjusted EBITDA increased 6% to $37.9 million.
-- Gross collections were $85.6 million, a 13% increase over the
$75.8 million in the same period of the prior year.
-- Revenues from receivable portfolios were $59.4 million, a 4% increase
over the $57.2 million in the same period of the prior year. Revenue
recognized on receivable portfolios, as a percentage of portfolio
collections, was 70%, compared to 76% 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 allowance charges for investment in receivable portfolios,
which included the $1.4 million write-down of healthcare receivables
associated with the cost savings initiatives.
-- Revenues from bankruptcy servicing were $3.3 million, compared to
$3.4 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 increased
to 55.1% compared to 50.5% in the same period of the prior year. This
increase was attributable to both the increase in legal costs
associated with collection initiatives as well as severance and other
costs associated with the cost savings initiatives. Total operating
expenses were $52.0 million, a 16% increase over the $45.0 million in
the same period of the prior year. Excluding the $1.4 million in
severance and other costs associated with the cost savings initiatives,
total operating expenses were $50.6 million, a 12% increase compared to
the $45.0 million in the prior year. Operating expense (excluding
stock-based compensation expense, bankruptcy servicing operating
expenses, costs related to the consideration of strategic alternatives
as well as severance and other costs associated with the cost savings
initiatives) per dollar collected was 53.4%.
-- Total interest expense was $3.6 million, compared to $6.7 million in
the same period of the prior year.
-- Investments in receivable portfolios were $47.9 million to purchase
$1.3 billion in face value of debt, compared to $32.3 million to
purchase $1.1 billion in face value of debt in the same period of the
prior year.
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)
September 30,
2007 December 31,
(Unaudited) 2006 (A)
Assets
Cash and cash equivalents $4,478 $10,791
Restricted cash 3,137 4,660
Accounts receivable, net 4,915 2,599
Investment in receivable portfolios, net 348,818 300,348
Property and equipment, net 4,650 5,249
Prepaid income tax 5,031 3,727
Purchased servicing asset 314 1,132
Forward flow asset 18,399 27,566
Other assets 26,200 21,903
Goodwill 13,735 13,735
Identifiable intangible assets, net 2,825 3,628
Total assets $432,502 $395,338
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued liabilities $18,823 $23,744
Accrued profit sharing arrangement - 6,869
Deferred tax liabilities, net 10,862 10,667
Deferred revenue 3,034 2,156
Purchased servicing obligation 187 634
Debt 232,948 200,132
Other liabilities 606 -
Total liabilities 266,460 244,202
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, 22,988 shares and 22,781 shares
issued and outstanding as of September 30,
2007 and December 31, 2006, respectively 230 228
Additional paid-in capital 71,698 66,532
Accumulated earnings 94,127 83,933
Accumulated other comprehensive (loss) income (13) 443
Total stockholders' equity 166,042 151,136
Total liabilities and stockholders'
equity $432,502 $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 Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Revenues
Revenue from receivable
portfolios, net $59,415 $57,247 $185,589 $174,425
Servicing fees and
other related revenue 3,276 3,350 9,705 12,585
Total revenues 62,691 60,597 195,294 187,010
Operating expenses
Salaries and employee
benefits 17,138 15,773 50,388 48,358
Stock-based compensation
expense 1,281 1,490 3,286 4,335
Cost of legal
collections 20,868 12,545 59,649 36,767
Other operating
expenses 4,987 5,308 16,970 17,409
Collection agency
commissions 2,478 4,533 8,639 14,178
General and
administrative expenses 4,462 4,388 12,965 11,421
Depreciation and
amortization 833 964 2,541 2,892
Total operating
expenses 52,047 45,001 154,438 135,360
Income before other
(expense) income
and income taxes 10,644 15,596 40,856 51,650
Other (expense) income
Interest expense (3,648) (2,920) (9,904) (9,286)
Contingent interest
expense - (3,824) (4,123) (12,746)
Pay-off of future
contingent interest - - (11,733) -
Other income 79 45 153 379
Total other expense (3,569) (6,699) (25,607) (21,653)
Income before income taxes 7,075 8,897 15,249 29,997
Provision for income taxes (1,717) (3,689) (5,055) (12,616)
Net income $5,358 $5,208 $10,194 $17,381
Basic - Earnings per
share computation:
Net income available to
common stockholders $5,358 $5,208 $10,194 $17,381
Weighted average shares
outstanding 22,922 22,778 22,837 22,745
Earnings per share -
Basic $0.23 $0.23 $0.45 $0.76
Diluted -Earnings per
share computation:
Net income available to
common stockholders $5,358 $5,208 $10,194 $17,381
Weighted average shares
outstanding 22,922 22,778 22,837 22,745
Incremental shares from
assumed conversion of
stock awards 551 605 583 644
Diluted weighted average
shares outstanding 23,473 23,383 23,420 23,389
Earnings per share -
Diluted $0.23 $0.22 $0.44 $0.74
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
Nine Months Ended
September 30,
2007 2006
Operating activities
Gross collections $269,782 $242,583
Less:
Amounts collected on behalf of third parties (368) (546)
Amounts applied to principal on receivable
portfolios (81,267) (66,937)
Servicing fees 89 51
Operating expenses (146,071) (121,420)
Interest payments (10,193) (9,634)
Contingent interest payments (22,724) (17,975)
Other income 153 379
Decrease in restricted cash 1,523 848
Income taxes (7,398) (842)
Excess tax benefits from stock-based payment
arrangements (683) (754)
Net cash provided by operating activities 2,843 25,753
Investing activities
Purchases of receivable portfolios, net of
forward flow allocation (125,224) (73,237)
Collections applied to principal of receivable
portfolios 81,267 66,937
Proceeds from put-backs and recalls of
receivable portfolios 2,097 2,691
Purchases of property and equipment (1,139) (1,447)
Net cash used in by investing activities (42,999) (5,056)
Financing activities
Proceeds from notes payable and other borrowings 53,000 23,500
Repayment of notes payable and other borrowings (20,000) (35,641)
Proceeds from exercise of common stock options 344 146
Excess tax benefits from stock-based payment
arrangements 683 754
Repayment of capital lease obligations (184) (179)
Net cash provided by (used in) financing
activities 33,843 (11,420)
Net (decrease) increase in cash (6,313) 9,277
Cash and cash equivalents, beginning of period 10,791 7,026
Cash and cash equivalents, end of period $4,478 $16,303
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
September 30,
2007 2006
GAAP net income, as reported $5,358 $5,208
Interest expense 3,648 2,920
Contingent interest expense - 3,824
Provision for income taxes 1,717 3,689
Depreciation and amortization 833 964
Amount applied to principal on receivable
portfolios 22,293 17,526
Stock-based compensation expense 1,281 1,490
Adjusted EBITDA $35,130 $35,621
GAAP total operating expenses, as reported $52,047 $45,001
Stock-based compensation expense (1,281) (1,490)
Bankruptcy servicing operating expenses (3,599) (4,499)
Costs related to the consideration of strategic
alternatives - (749)
Operating expenses, excluding stock-based
compensation expense, bankruptcy servicing
operating expenses and costs related to the
consideration of strategic alternatives $47,167 $38,263
SOURCE Encore Capital Group, Inc.10/25/2007
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)