Form 8K Earnings Release

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 8-K


CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):   May 4, 2004

Encore Capital Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware 000-26489 48-1090909
(State or other jurisdiction of
incorporation or organization)
(Commission File Number) (I.R.S Employer
(Identification No.)

5775 Roscoe Court
San Diego, California 92123
(Address of Principal Executive Offices) (Zip Code)

(877) 445-4581
(Registrant’s Telephone Number, Including Area Code)







Item 12. Disclosure of Results of Operations and Financial Condition

         On May 4, 2004 the Company issued a press release announcing its unaudited financial results for the first quarter ended March 31, 2004. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein solely for purposes of Item 12.

        The press release attached to this Current Report on Form 8-K as Exhibit 99.1 contains financial measures for income before taxes, net income and fully diluted earnings per share excluding one-time benefit that are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company has provided a reconciliation in the press release attached to this Current Report on Form 8-K as Exhibit 99.1 of the non-GAAP financial measures for income before taxes, net income and fully diluted earnings per share excluding one-time benefit to GAAP income before taxes, net income and fully diluted earnings per share.

        Management believes that these non-GAAP financial measures provide useful information to investors about the Company’s results of operations because the elimination of one-time benefit that is included in the GAAP financial measures results in a normalized comparison of certain key financial results between the periods presented.

        The information in this Current Report on Form 8-K, including the exhibit, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that Section. Furthermore, the information in this Current Report on Form 8-K, including the exhibit, shall not be deemed to be incorporated by reference into the filings of Encore Capital Group, Inc. under the Securities Act of 1933.


SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ENCORE CAPITAL GROUP, INC.
Date: May 4, 2004 By      /s/ Barry R. Barkley
——————————————
Barry R. Barkley
Executive Vice President,
Chief Financial Officer and Treasurer




2






EXHIBIT INDEX

Exhibit Description

  99.1 Press release dated May 4, 2004.





3






Press Release- Earnings

Encore Reports Net Income of $0.26 per Fully Diluted Share
For First Quarter of 2004

36% Increase in Collections, 51% Increase in Revenue,
and 76% Increase in Cash Flow from Operations



SAN DIEGO — (BUSINESS WIRE)—May 4, 2004 — Encore Capital Group, Inc. (Nasdaq: ECPG), a leading accounts receivable management firm, today reported consolidated financial results for the first quarter ended March 31, 2004.

For the first quarter of 2004:

“Encore turned in another strong performance during the first quarter ” said Carl C. Gregory, III, President and CEO of Encore Capital Group, Inc. “Importantly, this growth has been led by improving productivity, as seen by the 17% growth in monthly average of gross collections per average employee to $29,282 in the first quarter of 2004 from $25,001 in the first quarter of 2003.

“ In addition, we also diversified our purchasing. 52% of the first quarter of 2004 purchases were in the alternative paper category. This not only improved the potential return on these portfolios as they were purchased with our own funds, but also enabled us to make purchases that were more attractive than many credit card opportunities.”

Mr. Gregory added, “In our industry, the first quarter is usually the year’s best in terms of collections. It appears that debtors try to resolve past issues at the start of a new year when they can use their tax refunds as a source of debt repayment. Our challenge is to maintain this momentum throughout the year. “

First Quarter Financial Highlights

Revenue from receivable portfolios recognized as a percentage of collections was 68% in the first quarter of 2004 compared to 64% in the first quarter of 2003. When revenue and collections from the retained interest and servicing portfolios are included, revenue recognized as a percentage of collections was 66% in the first quarter of 2004 compared to 60% in the first quarter of 2003.

Total operating expenses were $23.3 million, an increase of 34% or $5.9 million over the $17.4 million in the first quarter of 2003. Total expenses as a percentage of gross collections declined slightly from 37% in the first quarter of 2003 to 36% in the 2004 quarter.

Cash flow from operations grew 76% or $3.5 million, to $8.2 million in the 2004 quarter from $4.7 million in the 2003 quarter. Cash flow as a percentage of gross collections also grew to 13% in the first quarter of 2004 compared with 10% in the 2003 quarter.

The Company spent $17.2 million to purchase approximately $786.4 million in face value of portfolios during the first quarter of 2004, a blended purchase price of 2.19% of face value. The Company spent $18.8 million to purchase approximately $589.4 million in face value of portfolios during the first quarter of 2003, a blended purchase price of 3.19% of face value.

Commenting on the outlook for the Company, Mr. Gregory said, “Although the first quarter’s pace of collections was quite impressive, we recognize that the year will be full of challenges and requires constant attention to the fundamentals that have contributed to our success to date. Our improved performance has been driven by disciplined portfolio purchases based on our proprietary modeling, effective collection efforts through multiple channels, and prudently scaling our business to service the volume of receivables that we own. We believe that continued execution on these core strategies will continue to create additional value for our stockholders”

The table included in the attached supplemental financial information is a reconciliation of generally accepted accounting principles in the United States of America (“GAAP”) income before taxes, net income, and fully diluted earnings per share to income before taxes, net income, and fully diluted earnings per share, excluding one-time benefits for the periods presented. We believe that these non-GAAP financial measures provide useful information to investors about our results of operations because the elimination of one-time benefits that are included in the GAAP financial measures results in a normalized comparison of certain key financial results between the periods presented.

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 the first quarter results. Members of the public are invited to listen to the live conference call via the Internet. To hear the presentation and to access a slide presentation containing financial information that will be discussed in the conference call, 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 an accounts receivable management firm that specializes in purchasing charged-off and defaulted consumer debt.

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 revenues, income or loss; estimates of capital expenditures; plans for future 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 availability and cost of financing; the Company’s ability to recover sufficient amounts on or with respect to receivables to fund operations; 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, 2003.

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 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 to publicly release the result of any revisions to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, whether as the result of new information, 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. (Shareholders/Analysts)
Carl C. Gregory, III, 858-309-6961
carl.gregory@encorecapitalgroup.com
or
Financial Relations Board (Press)
Tony Rossi, 310-407-6563 (Investor Relations)
trossi@financialrelationsboard.com

SOURCE: Encore Capital Group, Inc.










ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)



March 31,
2004
(Unaudited)
December 31,
2003 (A)


Assets            
Cash and cash equivalents   $ 36,803   $ 38,612  
Restricted cash    5,367    842  
Investment in receivable portfolios, net    86,208    89,136  
Investment in retained interest    72    1,231  
Property and equipment, net    2,844    2,786  
Deferred tax assets, net    5,089    1,358  
Other assets    4,527    4,320  


Total assets   $ 140,910   $ 138,285  


Liabilities and stockholders' equity   
Liabilities  
   Accounts payable and accrued liabilities   $ 12,735   $ 11,644  
   Accrued profit sharing arrangement     15,586    12,749  
   Income tax payable    6,849    883  
   Notes payable and other borrowings     27,656    41,178  
   Capital lease obligations    394    460  


Total liabilities    63,220    66,914  


Commitments and contingencies  
Stockholders' equity  
  Preferred stock, $.01 par value, 5,000 shares  
    authorized, and no shares issued and outstanding          
  Common stock, $.01 par value, 50,000 shares  
    authorized, 22,044 shares and 22,003 shares  
    issued and outstanding as of March 31, 2004  
    and December 31, 2003, respectively    220    220  
  Additional paid-in capital    65,711    65,387  
  Accumulated earnings    11,674    5,658  
  Accumulated other comprehensive income    85    106  


Total stockholders' equity    77,690    71,371  


Total liabilities and stockholders' equity   $ 140,910   $ 138,285  


(A)         Derived from the audited consolidated financial statements as of December 31, 2003










ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)



Three Months Ended   
March 31,   

2004    2003   


Revenues            
   Revenue from receivable portfolios   $ 42,075   $ 27,256  
   Revenue from retained interest    16    128  
   Servicing fees and other related income    296    739  


Total revenues    42,387    28,123  


Operating expenses  
   Salaries and employee benefits    11,624    9,647  
   Other operating expenses    4,094    2,377  
   Cost of legal collections    5,502    3,357  
   General and administrative expense    1,653    1,474  
   Depreciation and amortization    443    536  


Total operating expenses    23,316    17,391  


Income before other income (expense)  
   and income taxes    19,071    10,732  


Other income (expense)  
   Interest expense    (9,282 )  (4,410 )
   Other income    155    7,274  


Total other income (expense)    (9,127 )  2,864  


Income before income taxes    9,944    13,596  
Provision for income taxes    (3,928 )  (5,430 )


Net income    6,016    8,166  
Preferred Stock Dividends        (125 )


Net income available to common stockholders   $ 6,016   $ 8,041  


 Weighted average shares outstanding    22,020    7,411  
Incremental shares from assumed conversion of  
   warrants, options, and preferred stock    1,423    11,270  


Adjusted weighted average share outstanding    23,443    18,681  


Earnings per share - Basic   $ 0.27   $ 1.09  


Earnings per share - Diluted   $ 0.26   $ 0.44  











ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows

(Unaudited, In Thousands)



Three Months Ended
March 31,

2004 2003


Operating activities            
Gross collections   $ 63,996   $ 47,083  
Less:  
   Amounts collected on behalf of third parties    (962 )  (1,968 )
   Amounts applied to principal on receivable portfolios    (19,820 )  (15,132 )
   Amounts applied to principal of securitization 98-1    (1,123 )  (2,598 )
Servicing fees    296    739  
Operating expenses  
   Salaries and employee benefits    (12,705 )  (10,786 )
   Other operating expenses    (2,328 )  (2,887 )
   Cost of legal collections    (5,502 )  (3,357 )
   General and administrative    (1,583 )  (1,046 )
   Interest payments    (538 )  (876 )
   Contingent interest payments    (5,793 )  (3,391 )
   Other income and expense    190    64  
   Increase in restricted cash    (4,525 )  (643 )
   Income taxes    (1,410 )  (538 )


Net cash provided by operating activities    8,193    4,664  


Investing activities   
Purchases of receivable portfolios    (17,248 )  (18,803 )
Collections applied to principal of receivable portfolios    19,820    15,132  
Collections applied to principal of securitization 98-1    1,123    2,598  
Proceeds from put-backs of receivable portfolios    356    255  
Purchases of property and equipment    (502 )  (417 )


Net cash provided by (used in) investing activities    3,549    (1,235 )


Financing activities   
Proceeds from notes payable and other borrowings    6,952    16,922  
Repayment of notes payable and other borrowings    (20,474 )  (18,718 )
Proceeds from exercise of common stock options    36      
Payment of preferred dividend        (250 )
Repayment of capital lease obligations    (65 )  (69 )


Net cash used in financing activities    (13,551 )  (2,115 )


Net increase (decrease) in cash    (1,809 )  1,314  
Cash, beginning of period    38,612    752  


Cash, end of period   $ 36,803   $ 2,066  











ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows (cont.)
Reconciliation of Net Income to Net Cash Provided by Operating Activities

(Unaudited, In Thousands)



Three Months Ended
March 31,

2004 2003


Net income     $ 6,016   $ 8,166  
Adjustments to reconcile net income to net cash  
    provided by operating activities:  
       Depreciation and amortization    443    536  
       Amortization of loan costs and debt discount    11    122  
       Tax benefits from stock option exercises    261      
       Amortization of stock based compensation    27      
       Deferred income tax expense (benefit)    (3,716 )  4,982  
Changes in operating assets and liabilities  
       Increase in restricted cash    (4,525 )  (643 )
       Increase in other assets    (219 )  (10,793 )
       Increase (decrease) in accrued profit sharing arrangement    2,837    (51 )
       Increase in accounts payable and accrued liabilities    7,058    2,345  


Net cash provided by operating activities   $ 8,193   $ 4,664  











ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited, In Thousands)



Accumulated
Additional Other
Common Stock Paid-In Accumulated Comprehensive
Shares Par Capital Earnings Income Total

Balances at December 31, 2003      22,003   $ 220   $ 65,387   $ 5,658   $ 106   $ 71,371  
   Net income                6,016        6,016  
   Other comprehensive income - unrealized gain on  
        non-qualified deferred compensation plan assets                    15    15  
   Other comprehensive loss - decrease in unrealized gain  
        on investment in retained interest, net of tax                    (36 )  (36 )

   Comprehensive income                             5,995  
   Exercise of stock options    41        36            36  
   Tax benefits related to stock option exercises            261            261  
   Amortization of stock options issued at below market            27            27  

Balances at March 31, 2004    22,044   $ 220   $ 65,711   $ 11,674   $ 85   $ 77,690  










Encore Capital Group, Inc.
Supplemental Financial Information Reconciliation of GAAP Income Before Taxes, Net Income, and Fully Diluted Earnings Per
Share to Income Before Taxes, Net Income, and Fully Diluted Earnings Per Share
Excluding One-Time Benefits and Other Charges
For the Quarters Ended March 31, 2004 and 2003
($ in thousands, except per share amounts)



For the Quarter Ended
March 31,


2004 2003


Income Before Taxes            
GAAP, as reported   $ 9,944   $ 13,596  
Gain on settlement of litigation        (7,210 )


Income before taxes, excluding  
     one-time benefit   $ 9,944   $ 6,386  


Percentage increase over prior period    55.7 %     

    
    
Net Income   
GAAP, as reported   $ 6,016   $ 8,166  
Gain on settlement of litigation        (4,376 )


Net income, excluding  
     one-time benefit   $ 6,016   $ 3,790  


Percentage increase over prior period    58.7 %     

    
    
Fully Diluted Earnings Per Share   
Earnings per Share:   
GAAP, as reported   $ 0.26   $ 0.44  
Gain on settlement of litigation        (0.24 )


Fully diluted earnings per share,  
     excluding one-time benefit   $ 0.26   $ 0.20  


Percentage increase over prior period    30.0 %