UNITED STATES
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 9, 2005
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.) | ||
8875 Aero Drive, Suite 200
San Diego, California 92123
(Address of Principal Executive Offices) (Zip Code)
(877) 445-4581
(Registrant’s Telephone Number, Including Area Code)
| Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): |
 |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Disclosure of Results of Operations and Financial Condition
On May 9, 2005 the Company issued a press release announcing its unaudited financial results for the first quarter ended March 31, 2005. 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 2.02
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.
SIGNATURE
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 hereunto duly authorized.
| ENCORE CAPITAL GROUP, INC. | ||
| Date: May 9, 2005 | /s/ Paul Grinberg —————————————— Paul Grinberg Executive Vice President, Chief Financial Officer and Treasurer |
EXHIBIT INDEX
Exhibit Description
99.1 Press release dated May 9, 2005.
EXHIBIT 99.1
Encore Reports a 23%
Increase in
Fully Diluted Earnings
Per Share For the First Quarter of 2005
San Diego – (Business Wire) – May 9, 2005 – Encore Capital Group, Inc. (Nasdaq: ECPG), a leading accounts receivable management firm, today reported consolidated financial results for the first quarter ended March 31, 2005.
For the first quarter of 2005:
- Gross collections were $65.9 million, a 3% increase over the $64.0 million in the same period of the prior year
- Excluding $4.0 million in collections resulting from the sale of the Company’s portfolio of rewritten notes in 2004, collections increased 10% over the same period of the prior year
- Total revenues were $50.5 million, a 19% increase over the $42.4 million in the same period of the prior year
- Net income was $7.5 million compared with $6.0 million in the same period of the prior year, a 24% increase
- Earnings per fully diluted share were $0.32, a 23% increase over the $0.26 in the same period of the prior year.
“Our first quarter performance was in-line with our expectations and we have continued to generate solid levels of collections, revenues, and earnings per share,” said Carl C. Gregory, III, Vice Chairman and CEO of Encore Capital Group, Inc. “Despite the continuation of the challenging environment for purchases we’ve spoken about for several quarters, we were pleased with the increased collections. This increase is primarily attributable to the refinement of our consumer level account segmentation strategies, allowing us to penetrate the portfolios beyond our original and updated forecasts. We are also beginning to see the benefits of our reduced contingent interest expense. Our contingent interest was approximately 80% of the level incurred in the first quarter of 2004, and we expect this expense to continue to decline to approximately 60% of the prior year’s quarter by the end of 2005. ”
First Quarter Financial Highlights
Revenue recognized, as a percentage of collections, was 77% in the first quarter of 2005, compared to 66% in the first quarter of 2004. The increase in the percentage of collections recognized as revenue in the first quarter of 2005 is primarily attributable to deeper penetration of portfolios and the timing of historical purchases.
Total operating expenses for the first quarter of 2005 were $30.3 million, compared with $23.3 million in the first quarter of 2004. The increase in operating expenses is largely attributable to the mix of collections. Collections from sales, for which there are little to no associated costs, were approximately $5.7 million lower in the first quarter of 2005 than they were in the first quarter of 2004. The Company also increased its collections from alternative channels. While the costs from some of these channels are higher, the penetration of the Company’s portfolio is deeper, resulting in higher net collections than if only the internal collection sites were utilized.
The Company spent $19.5 million to purchase approximately $530 million in face value of portfolios during the first quarter of 2005, a blended purchase price of 3.68% of face value. All of the portfolios purchased in the first quarter of 2005 were credit card receivables. The Company funded all but $2.1 million of these portfolio purchases from its own cash balance and repaid all outstanding balances on its new credit facility by the end of the quarter.
Outlook
Commenting on the outlook for the Company, Brandon Black, President and COO, said, “Our disciplined approach to the purchasing market and use of conservative estimates of future collections are two strategies that we believe will allow the Company to produce steady performance in a variety of operating environments. We continue to see improved liquidation of the portfolio, which is directly linked to the development of new proprietary scoring models that more effectively segment consumers into risk classes and the expanded use of alternative collection channels. In addition, our improved financial profile has lowered our interest expense as well as provided us the flexibility and financial strength to explore complementary acquisitions that can enhance our growth opportunities. While the current conditions in the purchasing market present challenges to generating bottom-line growth in the near-term, we believe we have built a solid foundation that can support the profitable growth of the Company over a longer time horizon.”
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, 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 recognition rates and profitability); 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
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, 2004.
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
ENCORE CAPITAL GROUP,
INC.
Condensed Consolidated
Statements of Operations
(In Thousands, Except
Per Share Amounts)
(Unaudited)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| March 31, | ||||||||
| 2005 | 2004 | |||||||
| Revenues | ||||||||
| Revenue from receivable portfolios | $ | 50,420 | $ | 42,091 | ||||
| Servicing fees and other related income | 56 | 296 | ||||||
| Total revenues | 50,476 | 42,387 | ||||||
| Operating expenses | ||||||||
| Salaries and employee benefits | 12,600 | 11,624 | ||||||
| Other operating expenses | 4,642 | 3,422 | ||||||
| Collection agency commissions | 2,024 | 672 | ||||||
| Cost of legal collections | 8,356 | 5,502 | ||||||
| Other general and administrative expense | 2,158 | 1,653 | ||||||
| Depreciation and amortization | 511 | 443 | ||||||
| Total operating expenses | 30,291 | 23,316 | ||||||
| Income before other income (expense) | ||||||||
| and income taxes | 20,185 | 19,071 | ||||||
| Other income (expense) | ||||||||
| Interest expense | (8,087 | ) | (9,282 | ) | ||||
| Other income | 405 | 155 | ||||||
| Total other income (expense) | (7,682 | ) | (9,127 | ) | ||||
| Income before income taxes | 12,503 | 9,944 | ||||||
| Provision for income taxes | (5,051 | ) | (3,928 | ) | ||||
| Net income | $ | 7,452 | $ | 6,016 | ||||
| Weighted average shares outstanding | 22,227 | 22,020 | ||||||
| Incremental shares from assumed conversion of options | 1,353 | 1,423 | ||||||
| Adjusted weighted average share outstanding | 23,580 | 23,443 | ||||||
| Earnings per share - Basic | $ | 0.34 | $ | 0.27 | ||||
| Earnings per share - Diluted | $ | 0.32 | $ | 0.26 | ||||
ENCORE CAPITAL GROUP,
INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par
Value Amounts)
| March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | December 31, | |||||||
| (Unaudited) | 2004 (A) | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 15,098 | $ | 9,731 | ||||
| Investments in marketable securities | 16,000 | 40,000 | ||||||
| Restricted cash | 4,680 | 3,432 | ||||||
| Investment in receivable portfolios, net | 142,069 | 137,963 | ||||||
| Property and equipment, net | 3,280 | 3,360 | ||||||
| Deferred tax assets, net | 78 | 361 | ||||||
| Other assets | 6,230 | 6,295 | ||||||
| Total assets | $ | 187,435 | $ | 201,142 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 14,273 | $ | 17,418 | ||||
| Accrued profit sharing arrangement | 19,560 | 20,881 | ||||||
| Income taxes payable | 2,720 | - | ||||||
| Notes payable and other borrowings | 46,139 | 66,567 | ||||||
| Capital lease obligations | 214 | 261 | ||||||
| Total liabilities | 82,906 | 105,127 | ||||||
| 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, | ||||||||
| and 22,259 shares and 22,166 shares issued and outstanding | ||||||||
| as of March 31, 2005 and December 31, 2004, respectively | 223 | 222 | ||||||
| Additional paid-in capital | 67,928 | 66,788 | ||||||
| Accumulated earnings | 36,286 | 28,834 | ||||||
| Accumulated other comprehensive income | 92 | 171 | ||||||
| Total stockholders' equity | 104,529 | 96,015 | ||||||
| Total liabilities and stockholders' equity | $ | 187,435 | $ | 201,142 | ||||
(A) Derived from the audited consolidated financial statements as of December 31, 2004
ENCORE CAPITAL GROUP,
INC.
Condensed Consolidated
Statements of Cash Flows
(Unaudited, In
Thousands)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| March 31, | ||||||||
| 2005 | 2004 | |||||||
| Operating activities | ||||||||
| Gross collections | $ | 65,853 | $ | 63,996 | ||||
| Less: | ||||||||
| Amounts collected on behalf of third parties | (274 | ) | (962 | ) | ||||
| Amounts applied to principal on receivable portfolios | (15,160 | ) | (20,943 | ) | ||||
| Servicing fees | 56 | 296 | ||||||
| Operating expenses | ||||||||
| Salaries and employee benefits | (15,769 | ) | (12,705 | ) | ||||
| Other operating expenses | (4,329 | ) | (1,656 | ) | ||||
| Cost of legal collections | (8,356 | ) | (5,502 | ) | ||||
| Collection agency commissions | (2,024 | ) | (672 | ) | ||||
| Other general and administrative | (2,519 | ) | (1,583 | ) | ||||
| Interest payments | (1,151 | ) | (538 | ) | ||||
| Contingent interest payments | (8,205 | ) | (5,793 | ) | ||||
| Other income | 405 | 190 | ||||||
| Increase in restricted cash | (1,248 | ) | (4,525 | ) | ||||
| Income taxes | (1,490 | ) | (1,410 | ) | ||||
| Net cash provided by operating activities | 5,789 | 8,193 | ||||||
| Investing activities | ||||||||
| Purchases of receivable portfolios | (19,523 | ) | (17,248 | ) | ||||
| Collections applied to principal of receivable portfolios | 15,160 | 20,943 | ||||||
| Proceeds from sales of marketable securities | 24,000 | 1,000 | ||||||
| Proceeds from put-backs of receivable portfolios | 258 | 356 | ||||||
| Purchases of property and equipment | (431 | ) | (502 | ) | ||||
| Net cash provided by investing activities | 19,464 | 4,549 | ||||||
| Financing activities | ||||||||
| Proceeds from notes payable and other borrowings | 2,088 | 6,952 | ||||||
| Repayment of notes payable and other borrowings | (22,516 | ) | (20,474 | ) | ||||
| Proceeds from exercise of common stock options | 588 | 36 | ||||||
| Repayment of capital lease obligations | (46 | ) | (65 | ) | ||||
| Net cash used in financing activities | (19,886 | ) | (13,551 | ) | ||||
| Net increase (decrease) in cash | 5,367 | (809 | ) | |||||
| Cash, beginning of period | 9,731 | 8,612 | ||||||
| Cash, end of period | $ | 15,098 | $ | 7,803 | ||||
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, | ||||||||
| 2005 | 2004 | |||||||
| Net income | $ | 7,452 | $ | 6,016 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation and amortization | 511 | 443 | ||||||
| Amortization of loan costs | 44 | 11 | ||||||
| Tax benefits from stock option exercises | 526 | 261 | ||||||
| Amortization of stock based compensation | 27 | 27 | ||||||
| Deferred income tax expense (benefit) | 283 | (3,716 | ) | |||||
| Changes in operating assets and liabilities | ||||||||
| Decrease in restricted cash | (1,248 | ) | (4,525 | ) | ||||
| Increase in income taxes payable | 2,744 | - | ||||||
| Increase in other assets | (5 | ) | (219 | ) | ||||
| (Decrease) increase in accrued profit sharing arrangement | (1,321 | ) | 2,837 | |||||
| (Decrease) increase in accounts payable and accrued liabilities | (3,224 | ) | 7,058 | |||||
| Net cash provided by operating activities | $ | 5,789 | $ | 8,193 | ||||
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