Encore Capital Reports Record Fourth Quarter and Full Year 2005 Earnings
SAN DIEGO, March 15 /PRNewswire-FirstCall/ -- Encore Capital Group, Inc. (Nasdaq: ECPG), a leading accounts receivable management firm, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2005.
For the fourth quarter of 2005:
* Gross collections were $72.0 million, a 35% increase over the
$53.4 million in the same period of the prior year
* Total revenues were $58.4 million, a 27% increase over the $46.0 million
in the same period of the prior year
* Net income was $7.8 million, a 37% increase over the $5.7 million in the
same period of the prior year
* Earnings per fully diluted share were $0.32, a 33% increase over the
$0.24 in the same period of the prior year.
For the full year of 2005:
* Gross collections were $292.2 million, a 24% increase over the
$234.7 million in 2004
* Total revenues were $221.8 million, a 24% increase over the
$178.5 million in 2004
* Net income was $31.1 million, a 34% increase over the $23.2 million in
2004
* Earnings per fully diluted share were $1.30, a 31% increase over the
$0.99 in 2004
Commenting on the fourth quarter and the full year, J. Brandon Black, President and CEO of Encore Capital Group, Inc., said, "Our fourth quarter capped another record year for the Company. For the year, we generated the highest level of collections, revenues, and profits in our history. We continue to remain disciplined in our purchasing process and during the fourth quarter we spent $39.9 million to purchase $1.3 billion in face value of debt. While deal flow was very strong in the fourth quarter due to the increased supply in the credit card market resulting from bankruptcy reform, we limited our purchases to those that we felt were appropriately priced and could generate an adequate return for our stockholders. Similarly, we remained steadfast in our goal to find further process innovations and efficiency improvements to help offset the elevated level of pricing that we continue to see.
"We continue to be pleased with our initial bulk portfolio purchase and the forward flow agreement from the Jefferson Capital transaction. Through the end of February 2006, cumulative collections on the initial bulk portfolio purchase were $50.4 million, or 53% of the purchase price. The forward flow continues to provide us favorably priced portfolio and collections continue to meet our expectations.
"Ascension Capital, our fee-based bankruptcy services business achieved record placements in the fourth quarter, confirming our projections for increasing demand for these services. We continue to see a strong pipeline of potential new clients that we believe will help this business maintain its momentum in the future," said Mr. Black.
Financial Highlights
Revenue recognized on receivable portfolios, as a percentage of portfolio collections, was 75% in the fourth quarter of 2005, compared with 86% in the fourth quarter of 2004. The lower revenue recognition rate was partially attributable to a higher percentage of collections from more recently purchased portfolios that have lower collection multiples assigned to them. The change in the revenue recognition rate was also attributable to a $2.3 million allowance charge recorded in the fourth quarter of 2005, which was netted against revenue.
The Company generated $4.4 million in fee-based revenue during the fourth quarter of 2005, through the Ascension Capital bankruptcy services business acquired in August 2005.
Total operating expenses for the fourth quarter of 2005 were $38.0 million, compared with $27.9 million in the fourth quarter of 2004. Excluding Ascension Capital, which is a fee-based business, operating expenses were $32.9 million in the fourth quarter of 2005, compared with $27.9 million in the fourth quarter of 2004, while operating expense per dollar collected declined to 45.7% from 52.3%.
Total interest expense was $7.8 million in the fourth quarter of 2005, compared to $8.5 million in the fourth quarter of 2004. The contingent interest component of interest expense was $4.6 million in the fourth quarter of 2005, compared with $7.4 million in the same period of the prior year. The Company continues to see a reduction in contingent interest expense as collections decline from older portfolios purchased under its previous credit facility.
During the fourth quarter, the Company spent $39.9 million to purchase $1.3 billion in face value of debt. For the full year of 2005, the Company spent $195.6 million to purchase $5.9 billion in face value of debt.
Outlook
Commenting on the outlook for Encore Capital Group, Mr. Black said, "In 2006, we expect our traditional collection business to be a steady cash generator and we will continue to enhance our unique operating platform that is predicated on consumer level analytics and technology. We have been able to maintain strong revenue and earnings growth despite a challenging purchasing environment over the last year, and we remain confident in our ability to continue generating growth in revenue and earnings over the long term. The fundamentals of our industry remain strong, with expected future increases in supply as consumer debt levels increase and creditors across different asset classes explore debt sales to monetize their charged-off receivables. Our consumer level analytical approach will position us well to capitalize on these opportunities.
"Nevertheless, our near term earnings growth will be affected by our ability to identify opportunities to acquire attractively priced portfolios, as we did with the Jefferson Capital transaction in 2005, and by our portfolio mix which has shifted towards more recently purchased portfolios with lower collection multiples assigned to them. In 2006, we will continue to supplement our core business by seeking to identify investment opportunities in new areas with high growth potential within the distressed consumer debt market, as we did with bankruptcy services and medical collections," said Mr. Black.
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 fourth quarter and full year 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 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.
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 www.encorecapitalgroup.com.
Forward Looking Statements
The statements in this press release that are not historical facts, including, most importantly, those statements preceded by, or that include, the words "may," "believes," "projects," "expects," "anticipates" or the negation thereof, or similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). These statements may include, but are not limited to, projections of future contingent interest expense, purchase volumes, revenues, income or loss (including our expectations regarding the current environment for and timing of portfolio purchases and the resulting effect on revenue and profitability), the size of the markets for bankruptcy services and delinquent consumer healthcare debt, and the exploitation of new opportunities in those markets; plans for future acquisitions, operations, products or services; and financing needs or plans, as well as assumptions relating to those matters. For all "forward-looking statements," the Company claims the protection of the safe harbor for forward-looking statements contained in the Reform Act. Such forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company and our subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could affect the Company's results and cause them to materially differ from those contained in the forward-looking statements include: the Company's ability to purchase receivables portfolios on acceptable terms and in sufficient quantities; the Company's ability to acquire and collect on portfolios consisting of new types of receivables; the Company's ability to recover sufficient amounts on or with respect to receivables to fund operations; the Company's ability to successfully execute acquisitions; the Company's continued servicing of receivables in its third party financing transactions; the Company's ability to hire and retain qualified personnel to recover on its receivables efficiently; changes in, or failure to comply with, government regulations; the costs, uncertainties and other effects of legal and administrative proceedings; and risk factors and cautionary statements made in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2005. Forward-looking statements speak only as of the date the statement was made. They are inherently subject to risks and uncertainties, some of which the Company cannot control, predict or quantify. Future events and actual results could differ materially from the forward-looking statements. The Company will not undertake and specifically declines any obligation, nor does the Company intend, to update or revise any forward-looking statements to reflect new information or future events or for any other reason. In addition, it is the Company's policy generally not to make any specific projections as to future earnings, and the Company does not endorse any projections regarding future performance that may be made by third parties.
Contact:
Encore Capital Group, Inc.
Paul Grinberg (858) 309-6904 (Stockholders/Analysts)
paul.grinberg@encorecapitalgroup.com
or
Ren Zamora (858) 560-3598 (Investor Relations)
ren.zamora@encorecapitalgroup.com
Encore Capital Group, Inc.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
December 31, December 31,
2005(A) 2004(A)
Assets
Cash and cash equivalents $7,026 $9,731
Investment in marketable
securities -- 40,000
Restricted cash 4,212 3,432
Accounts receivable, net 5,515 --
Investment in receivables
portfolios, net 256,333 137,963
Property and equipment, net 5,113 3,360
Prepaid income tax 4,289 24
Purchased servicing asset 3,035 --
Deferred tax assets, net 2,040 361
Forward flow asset 38,201 --
Other assets 16,065 6,271
Goodwill 14,148 --
Identifiable intangible
assets, net 5,227 --
Total assets $361,204 $201,142
Liabilities and stockholders'
equity
Liabilities:
Accounts payable and accrued
liabilities $23,101 $17,418
Accrued profit sharing
arrangement 16,528 20,881
Deferred revenue 3,326 --
Purchased servicing
obligation 1,776 --
Debt 198,121 66,828
Total liabilities 242,852 105,127
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock,
$.01 par value, 5,000 shares
authorized, and no shares
issued and outstanding -- --
Common stock, $.01 par value,
50,000 shares authorized,
and 22,651 shares and
22,166 shares issued and
outstanding
as of December 31, 2005
and 2004, respectively 227 222
Additional paid-in capital 57,989 66,788
Accumulated earnings 59,925 28,834
Accumulated other
comprehensive income 211 171
Total stockholders' equity 118,352 96,015
Total liabilities and
stockholders' equity $361,204 $201,142
(A) Derived from the audited consolidated financial statements.
Encore Capital Group, Inc.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
Three Months Ended Year Ended
December 31, December 31,
(Unaudited)
2005 2004 2005(A) 2004(A)
Revenues
Revenue from
receivable
portfolios, net $53,906 $45,881 $215,931 $177,783
Servicing fees
and other
related revenue 4,470 98 5,904 692
Total revenues 58,376 45,979 221,835 178,475
Operating expenses
Salaries and
employee benefits 14,500 12,006 52,410 47,193
Cost of legal
collections 9,128 7,674 35,090 28,202
Other operating
expenses 4,445 3,184 16,973 13,645
Collection
agency commissions 4,559 1,585 17,287 4,786
General and
administrative
expenses 4,162 2,935 13,375 9,212
Depreciation and
amortization 1,200 539 2,686 1,951
Total operating
expenses 37,994 27,923 137,821 104,989
Income before other
income (expense)
and income taxes 20,382 18,056 84,014 73,486
Other income (expense)
Interest expense (7,778) (8,501) (32,717) (35,330)
Other income 319 118 929 690
Total other
expense (7,459) (8,383) (31,788) (34,640)
Income before
income taxes 12,923 9,673 52,226 38,846
Provision for
income taxes (5,160) (3,990) (21,135) (15,670)
Net income $7,763 $5,683 $31,091 $23,176
Basic - earnings
per share computation:
Net income $7,763 $5,683 $31,091 $23,176
Weighted average
shares outstanding 22,353 22,126 22,299 22,072
Earnings per
share - Basic $0.35 $0.26 $1.39 $1.05
Diluted - earnings
per share computation:
Net income $7,763 $5,683 $31,091 $23,176
Interest expense
on convertible
notes, net of tax 149 -- 207 --
Net income assuming
conversion of
convertible notes $7,912 $5,683 $31,298 $23,176
Weighted average
shares outstanding 22,353 22,126 22,299 22,072
Incremental shares
from assumed
conversion of
warrants, options,
and preferred stock 1,226 1,479 1,240 1,409
Incremental shares
from assumed
conversion of
convertible notes 1,338 -- 459 --
Diluted weighted
average shares
outstanding 24,917 23,605 23,998 23,481
Earnings per
share - Diluted $0.32 $0.24 $1.30 $0.99
(A) Derived from the audited consolidated financial statements.
Encore Capital Group, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
Years ended December 31,
2005(A) 2004(A)
Operating activities
Gross collections $292,163 $234,676
Less:
Amounts collected on behalf of third
parties (1,052) (2,337)
Amounts applied to principal on
receivable portfolios (72,044) (54,557)
Servicing fees 451 692
Operating expenses (128,355) (98,470)
Interest payments (7,139) (2,892)
Contingent interest payments (27,541) (24,128)
Other income 929 690
Decrease (increase) in restricted
cash (780) (2,590)
Income taxes (25,406) (14,672)
Net cash provided by operating
activities 31,226 36,412
Investing activities
Cash paid for Jefferson Capital (142,862) --
Cash paid for Ascension Capital Group (15,970) --
Escrow deposit on employee retention
contract (2,000) --
Purchases of receivable portfolios (94,689) (103,374)
Collections applied to principal of
receivable portfolios 72,044 54,557
Purchases of marketable securities -- (40,000)
Proceeds from the sale of marketable
securities 40,000 --
Proceeds from put-backs of receivable
portfolios 1,996 1,185
Purchases of property and equipment (2,863) (2,525)
Net cash used in investing
activities (144,344) (90,157)
Financing activities
Proceeds from notes payable and other
borrowings 191,367 78,676
Proceeds from convertible note borrowings 100,000 --
Proceeds from sale of warrants associated
with convertible notes 11,573 --
Purchase of call options associated with
convertible notes (27,418) --
Repayment of notes payable and other
borrowings (160,947) (53,288)
Proceeds from exercise of common stock
options and warrants 1,213 169
Capitalization of loan fees (5,816) (494)
Net borrowing (repayment) of capital
lease obligations 441 (199)
Net cash provided by financing
activities 110,413 24,864
Net increase (decrease) in cash (2,705) (28,881)
Cash and cash equivalents, beginning of
year 9,731 38,612
Cash and cash equivalents, end of year $7,026 $9,731
(A) Derived from the audited consolidated financial statements.
SOURCE Encore Capital Group, Inc.
03/15/2006
CONTACT: Stockholders/Analysts, Paul Grinberg, +1-858-309-6904,
paul.grinberg@encorecapitalgroup.com, or Investor Relations, Ren Zamora,
+1-858-560-3598, ren.zamora@encorecapitalgroup.com, both of Encore Capital
Group, Inc.
Web site: http://www.encorecapitalgroup.com
(ECPG)
03/15/2006 16:10 EST http://www.prnewswire.com