Encore Capital Group Announces Third Quarter 2008 Results
SAN DIEGO, Oct. 28 /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, 2008.
For the third quarter of 2008:
-- Gross collections were $97.8 million, a 14% increase over the
$85.6 million in the same period of the prior year.
-- Investments in receivable portfolios were $66.1 million, to purchase
$1.8 billion in face value of debt, compared to $47.9 million, to
purchase $1.3 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
$138.0 million as of September 30, 2008, compared to $67.3 million as
of September 30, 2007.
-- Revenues from receivable portfolios were $62.6 million, a 5% increase
over the $59.4 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 71%,
compared to 74% in the same period of the prior year.
-- Revenues from bankruptcy servicing were $3.8 million, compared to
$3.3 million in the same period of the prior year.
-- Total operating expenses were $55.8 million, a 7% increase over the
$52.0 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 52.2% compared to
55.1% 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 $47.3 million, a 21% increase over the
$39.0 million in the same period of the prior year.
-- Total interest expense was $3.9 million, compared to $3.6 million in
the same period of the prior year.
-- Net income was $3.8 million or $0.16 per fully diluted share, compared
to net income of $5.4 million or $0.23 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 September 30, 2008.
-- In the third quarter of 2008, the Company recorded a net impairment
provision of $7.3 million, compared to a net impairment provision of
$2.4 million and a write-down of its healthcare receivable portfolios
of $1.4 million in the same period of the prior year.
-- In the third quarter of 2008, the Company recorded an income tax
provision of $2.9 million, reflecting an effective tax rate of 43.7%,
compared to an income tax provision of $1.7 million, reflecting an
effective tax rate of 24.3% in the same period of the prior year. The
increase in the overall effective tax rate in the third quarter of 2008
is primarily due to state law changes, which resulted in a higher
effective state tax rate. The overall effective tax rate in the third
quarter of 2007 reflected a one-time benefit of 15.2% primarily due to
certain beneficial changes to the effective state tax rate.
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. 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 and bankruptcy servicing operating expenses 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 and bankruptcy servicing operating expenses 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)
September 30, December 31,
2008 2007
Assets
Cash and cash equivalents $5,403 $4,900
Restricted cash 4,435 3,776
Accounts receivable, net 4,364 4,136
Investment in receivable portfolios, net 444,963 392,209
Deferred court costs 27,207 20,533
Property and equipment, net 5,182 4,390
Prepaid income tax 465 10,346
Forward flow asset 10,302 15,863
Other assets 7,109 8,800
Goodwill 15,985 15,985
Identifiable intangible assets, net 1,943 2,557
Total assets $527,358 $483,495
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued liabilities $18,189 $20,346
Deferred tax liabilities, net 14,431 13,669
Deferred revenue and purchased servicing
obligation 4,897 3,898
Debt 292,943 272,420
Other liabilities 1,650 1,642
Total liabilities 332,110 311,975
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, 23,044 shares and 22,992 shares
issued and outstanding as of September 30,
2008, and December 31, 2007, respectively 230 230
Additional paid-in capital 78,441 73,310
Accumulated earnings 117,578 98,975
Accumulated other comprehensive loss (1,001) (995)
Total stockholders' equity 195,248 171,520
Total liabilities and stockholders'
equity $527,358 $483,495
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,
2008 2007 2008 2007
Revenues
Revenue from receivable
portfolios, net $62,557 $59,415 $192,900 $185,589
Servicing fees and
other related revenue 3,816 3,276 11,047 9,705
Total revenues 66,373 62,691 203,947 195,294
Operating expenses
Salaries and employee
benefits (excluding
stock-based
compensation expense) 14,963 17,138 45,503 50,388
Stock-based
compensation expense 860 1,281 3,182 3,286
Cost of legal
collections 25,390 20,868 69,525 59,649
Other operating expenses 6,018 4,987 17,656 16,970
Collection agency
commissions 2,996 2,478 10,808 8,639
General and
administrative expenses 4,864 4,462 13,905 12,965
Depreciation and
amortization 674 833 2,162 2,541
Total operating
expenses 55,765 52,047 162,741 154,438
Income before other
(expense) income and
income taxes 10,608 10,644 41,206 40,856
Other (expense) income
Interest expense (3,880) (3,648) (11,409) (9,904)
Contingent interest
expense - - - (4,123)
Pay-off of future
contingent interest - - - (11,733)
Gain on repurchase of
convertible notes, net - - 1,417 -
Other (expense) income (32) 79 341 153
Total other expense (3,912) (3,569) (9,651) (25,607)
Income before income taxes 6,696 7,075 31,555 15,249
Provision for income taxes (2,923) (1,717) (12,952) (5,055)
Net income $3,773 $5,358 $18,603 $10,194
Weighted average shares
outstanding:
Basic 23,029 22,922 23,009 22,837
Diluted 23,675 23,473 23,531 23,420
Earnings per share:
Basic $0.16 $0.23 $0.81 $0.45
Diluted $0.16 $0.23 $0.79 $0.44
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
Nine Months Ended
September 30,
2008 2007
Operating activities:
Net Income $18,603 $10,194
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,162 2,541
Amortization of loan costs 989 912
Stock-based compensation expense 3,182 3,286
Gain on repurchase of convertible notes, net (1,417) -
Deferred income tax expense 762 195
Other non-cash tax benefits, net 1,912 1,538
Tax provision (benefit) from stock-based
payment arrangements 4 (683)
Provision for impairment on receivable
portfolios, net 15,993 2,558
Changes in operating assets and liabilities
Restricted cash (659) 1,523
Other assets 1,091 (598)
Deferred court costs (6,674) (6,110)
Prepaid income tax 9,881 (1,304)
Accrued profit sharing arrangement - (6,869)
Deferred revenue and purchased service
obligation 999 431
Accounts payable and accrued liabilities (2,203) (4,771)
Net cash provided by operating activities 44,625 2,843
Investing activities:
Purchases of receivable portfolios, net of
forward flow allocation (160,940) (125,224)
Collections applied to investment in
receivable portfolios 95,144 81,267
Proceeds from put-backs of receivable
portfolios 2,610 2,097
Purchases of property and equipment (2,139) (1,139)
Net cash used in investing activities (65,325) (42,999)
Financing activities:
Proceeds from notes payable and other
borrowings 57,000 53,000
Repayment of notes payable and other
borrowings (32,169) (20,000)
Repurchase of convertible notes (3,500) -
Proceeds from exercise of stock options 84 344
Tax (provision) benefit from stock-based
payment arrangements (4) 683
Repayment of capital lease obligations (208) (184)
Net cash provided by financing activities 21,203 33,843
Net increase (decrease) in cash 503 (6,313)
Cash and cash equivalents, beginning of period 4,900 10,791
Cash and cash equivalents, end of period $5,403 $4,478
Supplemental disclosures of cash flow information:
Cash paid for interest $10,928 $32,917
Cash paid for income taxes $1,158 $7,398
Supplemental schedule of non-cash investing and
financing activities:
Fixed assets acquired through capital lease $201 $-
Allocation of forward flow asset to acquired
receivable portfolios $5,561 $9,168
ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted EBITDA to GAAP Net Income and Operating Expenses, Excluding Stock-based Compensation Expense and Bankruptcy Servicing Operating
Expenses to GAAP Total Operating Expenses
(Unaudited, In Thousands)
Three Months Ended
September 30,
2008 2007
GAAP net income, as reported $3,773 $5,358
Interest expense 3,880 3,648
Provision for income taxes 2,923 1,717
Depreciation and amortization 674 833
Amount applied to principal on receivable
portfolios 35,140 26,114
Stock-based compensation expense 860 1,281
Adjusted EBITDA $47,250 $38,951
GAAP total operating expenses, as reported $55,765 $52,047
Stock-based compensation expense (860) (1,281)
Bankruptcy servicing operating expenses (3,864) (3,599)
Operating expenses, excluding stock-based
compensation expense and bankruptcy servicing
operating expenses $51,041 $47,167
SOURCE Encore Capital Group, Inc. -0- 10/28/2008
/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)