Encore Capital Group Announces Third Quarter 2009 Results
For the third quarter of 2009:
-- Gross collections were $125.7 million , a 29% increase over the $97.8
million in the same period of the prior year. Excluding portfolio
sales, collections were $120.4 million , a 27% increase over the $94.6
million in the same period of the prior year.
-- Investment in receivable portfolios was $77.7 million , to purchase $2.2
billion in face value of debt, compared to $66.1 million , to purchase
$1.8 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 $53.0 million as of
September 30, 2009 . Total debt, consisting of the revolving credit
facility, convertible senior notes and capital lease obligations, was
$324.4 million as of September 30, 2009 , an increase of 7% from $303.7
million as of December 31, 2008 .
-- Revenue from receivable portfolios was $76.4 million , a 22% increase
over the $62.6 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 64%,
compared to 71% in the same period of the prior year.
-- Revenue from bankruptcy servicing was $3.9 million , a 3% increase over
the $3.8 million in the same period of the prior year.
-- Total operating expenses were $61.5 million , a 10% increase over the
$55.8 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 45.4% compared to
52.2% 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 $70.0 million , a 48% increase over the $47.3
million in the same period of the prior year.
-- Total interest expense was $4.0 million , compared to $5.1 million in the
same period of the prior year.
-- Net income was $9.0 million or $0.37 per fully diluted share, compared
to net income of $3.0 million or $0.13 per fully diluted share in the
same period of the prior year.
-- Tangible book value per share, computed by dividing total stockholders'
equity less goodwill and identifiable intangible assets by the number of
diluted shares outstanding, was $8.87 as of September 30, 2009 , a 13%
increase over $7.86 as of December 31, 2008 .
Additional Financial Information:
Certain events affected the comparability of 2009 versus 2008 quarterly results, as outlined below. For a more detailed comparison of 2009 versus 2008 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
-- In the third quarter of 2009, the Company recorded a net impairment
provision of $4.3 million , compared to a net impairment provision of
$7.3 million in the same period of the prior year.
-- In the third quarter of 2009, general and administrative expenses
increased by $2.4 million to $7.3 million , compared to $4.9 million in
the same period of the prior year. The increase was primarily the
result of an increase of $2.2 million in corporate legal expenses
related primarily to our settled Jefferson Capital arbitration and an
increase of $0.5 million in building rent primarily in India where we
are incurring rental charges at two locations, as we build out a larger
site.
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. The Company has included information concerning tangible book value per share because management believes that this metric is a meaningful measure that reflects the equity deployed in the business. 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
About
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,
2009 2008
---- ----
Adjusted
--------
Assets
Cash and cash equivalents $6,940 $10,341
Accounts receivable, net 3,211 1,757
Investment in receivable portfolios, net 534,656 461,346
Deferred court costs 27,710 28,335
Property and equipment, net 8,698 6,290
Prepaid income tax - 7,935
Forward flow asset - 10,302
Other assets 4,414 5,049
Goodwill 15,985 15,985
Identifiable intangible assets, net 1,268 1,739
------- -----
Total assets $602,882 $549,079
======== ========
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued liabilities $19,775 $18,204
Income taxes payable 3,256 -
Deferred tax liabilities, net 15,545 15,108
Deferred revenue and purchased servicing
obligation 5,675 5,203
Debt 324,394 303,655
Other liabilities 2,306 3,483
----- -----
Total liabilities 370,951 345,653
------- -------
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, 23,159 shares and 23,053 shares
issued and outstanding as of September 30,
2009, and December 31, 2008, respectively 232 231
Additional paid-in capital 101,677 98,521
Accumulated earnings 131,437 106,795
Accumulated other comprehensive loss (1,415) (2,121)
------ ------
Total stockholders' equity 231,931 203,426
------- -------
Total liabilities and stockholders'
Equity $602,882 $549,079
======== ========
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2009 2008 2009 2008
---- ---- ---- ----
Adjusted Adjusted
-------- --------
Revenue
Revenue from receivable
portfolios, net $76,448 $62,557 $222,688 $192,900
Servicing fees and other
related revenue 3,938 3,816 12,179 11,047
----- ----- ------ ------
Total revenue 80,386 66,373 234,867 203,947
------ ------ ------- -------
Operating expenses
Salaries and employee benefits
(excluding stock-based
compensation expense) 14,411 14,963 43,130 45,503
Stock-based compensation expense 1,261 860 3,335 3,182
Cost of legal collections 26,092 25,390 84,665 69,525
Other operating expenses 6,034 6,018 18,612 17,656
Collection agency commissions 5,795 2,996 13,483 10,808
General and administrative
expenses 7,280 4,864 20,074 13,905
Depreciation and amortization 652 674 1,895 2,162
--- --- ----- -----
Total operating expenses 61,525 55,765 185,194 162,741
------ ------ ------- -------
Income before other (expense)
income and income taxes 18,861 10,608 49,673 41,206
------ ------ ------ ------
Other (expense) income
Interest expense (3,970) (5,140) (12,201) (15,171)
Gain on repurchase of
convertible notes, net - - 3,268 707
Other income (expense) 61 (32) (11) 341
--- --- --- ---
Total other expense (3,909) (5,172) (8,944) (14,123)
------ ------ ------ -------
Income before income taxes 14,952 5,436 40,729 27,083
Provision for income taxes (5,948) (2,408) (16,087) (11,142)
------ ------ ------- -------
Net income $9,004 $3,028 $24,642 $15,941
====== ====== ======= =======
Weighted average shares outstanding:
Basic 23,225 23,029 23,177 23,009
Diluted 24,199 23,675 23,936 23,531
Earnings per share:
Basic $0.39 $0.13 $1.06 $0.69
Diluted $0.37 $0.13 $1.03 $0.68
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
Nine Months Ended
September 30,
------------
2009 2008
---- ----
Adjusted
--------
Operating activities:
Net Income $24,642 $15,941
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,895 2,162
Amortization of loan costs and debt discount 3,100 4,751
Stock-based compensation expense 3,335 3,182
Gain on repurchase of convertible notes, net (3,268) (707)
Deferred income tax expense 437 825
Tax provision from stock-based payment
arrangements 42 4
Provision for impairment on receivable
portfolios, net 14,323 15,993
Changes in operating assets and liabilities
Other assets (1,623) 1,091
Deferred court costs 625 (6,674)
Prepaid income tax and income tax payable 11,149 9,920
Deferred revenue and purchased service
obligation 472 999
Accounts payable, accrued liabilities and
other liabilities 840 (2,203)
--- ------
Net cash provided by operating activities 55,969 45,284
------ ------
Investing activities:
Purchases of receivable portfolios, net of
forward flow allocation (205,378) (160,940)
Collections applied to investment in
receivable portfolios, net 126,019 95,144
Proceeds from put-backs of receivable
portfolios 2,028 2,610
Purchases of property and equipment (3,626) (2,139)
------ ------
Net cash used in investing activities (80,957) (65,325)
------- -------
Financing activities:
Proceeds from revolving credit facility 85,500 57,000
Repayment of revolving credit facility (41,500) (32,169)
Repurchase of convertible notes (22,262) (3,500)
Proceeds from exercise of stock options 123 84
Tax provision from stock-based payment
arrangements (42) (4)
Repayment of capital lease obligations (232) (208)
---- ----
Net cash provided by financing activities 21,587 21,203
------ ------
Net (decrease) increase in cash (3,401) 1,162
Cash and cash equivalents, beginning of period 10,341 8,676
------ -----
Cash and cash equivalents, end of period $6,940 $9,838
====== ======
Supplemental disclosures of cash flow information:
Cash paid for interest $9,568 $10,928
Income tax payment $4,859 $1,158
Supplemental schedule of non-cash investing and
financing activities:
Fixed assets acquired through capital lease $224 $201
Allocation of forward flow asset to acquired
receivable portfolios $10,302 $5,561
ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted EBITDA to GAAP Net Income, Operating
Expenses, Excluding Stock-based Compensation Expense and Bankruptcy
Servicing Operating Expenses to GAAP Total Operating Expenses,
and Tangible Book Value Per Share to GAAP Total Stockholders' Equity
(Unaudited, In Thousands, Except Per Share Amounts)
Three Months Ended
September 30,
------------
2009 2008
---- ----
Adjusted
--------
GAAP net income, as reported $9,004 $3,028
Interest expense 3,970 5,140
Provision for income taxes 5,948 2,408
Depreciation and amortization 652 674
Amount applied to principal on receivable portfolios 49,188 35,140
Stock-based compensation expense 1,261 860
----- ---
Adjusted EBITDA $70,023 $47,250
======= =======
Three Months Ended
September 30,
------------
2009 2008
---- ----
GAAP total operating expenses, as reported $61,525 $55,765
Stock-based compensation expense (1,261) (860)
Bankruptcy servicing operating expenses (3,238) (3,864)
------ ------
Operating expenses, excluding stock-based
compensation expense and bankruptcy servicing
operating expenses $57,026 $51,041
======= =======
As of As of
September 30, December 31,
2009 2008
---- ----
Adjusted
--------
GAAP total stockholders' equity, as reported $231,931 $203,426
Goodwill (15,985) (15,985)
Identifiable intangible assets, net (1,268) (1,739)
------ ------
Tangible book value $214,678 $185,702
Diluted shares outstanding 24,199 23,632
------ ------
Tangible book value per share $8.87 $7.86
SOURCE
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.