UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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): February 13, 2013

 

 

ENCORE CAPITAL GROUP, INC.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware		000-26489		48-1090909
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)
3111 Camino Del Rio North, Suite 1300, San Diego, California				92108
(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))

 

 

 

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Item 2.02.

Results of Operations and Financial Condition.

On February 13, 2013, Encore Capital Group, Inc. (the “Company”) issued a press release announcing its financial results for the fourth quarter and full year ended December 31, 2012. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.

The information in Item 2.02 of this Current Report on Form 8-K, including the information contained in Exhibit 99.1, is being furnished to the Securities and Exchange Commission pursuant to Item 2.02, and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by a specific reference in such filing.

 

Item 7.01.

Regulation FD Disclosure.

A copy of a slide presentation contained on the Company’s website is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein solely for purposes of this Item 7.01.

The information in Item 7.01 of this Current Report on Form 8-K, including the information contained in Exhibit 99.2, is being furnished to the Securities and Exchange Commission pursuant to Item 7.01, and shall not be deemed to be “filed” for the purposes of the Exchange Act or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by a specific reference in such filing.

 

Item 9.01.

Financial Statements and Exhibits.

 

(d)

Exhibits.

 

		Exhibit Number		Description
		99.1		Press release dated February 13, 2013.
		99.2		Slide presentation of Encore Capital Group, Inc. dated February 13, 2013.

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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: February 13, 2013						/s/ Paul Grinberg
						Paul Grinberg
						Executive Vice President, Chief Financial Officer and Treasurer

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EXHIBIT INDEX

 

Exhibit Number		Description
99.1		Press release dated February 13, 2013.
99.2		Slide presentation of Encore Capital Group, Inc. dated February 13, 2013.

Exhibit 99.1

 

Encore Capital Group Announces Fourth Quarter and Full Year 2012 Financial Results

Quarterly Net Income Increased 17% to $20.2 million; Quarterly Gross Collections Increased 24% to $230.5 million

SAN DIEGO, February 13, 2013—Encore Capital Group, Inc. (Nasdaq: ECPG), through its subsidiaries (the “Company”), a leading provider of debt management and recovery solutions for consumers and property owners across a broad range of assets, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2012.

“2012 was an exceptional year for Encore,” said Brandon Black, the Company’s President and Chief Executive Officer. “We delivered record earnings, record collections and record operating cash flow, even as we made investments to strengthen our core business and expand our services for financially stressed consumers through the acquisition of Propel Financial Services. We believe that these strategic investments, combined with our analytic strength and our disciplined approach to deploying capital, position us well in an increasingly complex business and regulatory environment.”

For the Fourth Quarter of 2012:

 

•

Gross collections from the portfolio purchasing and recovery business were $230.5 million, a 24% increase over the $185.9 million in the same period of the prior year.

 

•

Investment in receivable portfolios in the portfolio purchasing and recovery business was $153.6 million, to purchase $8.5 billion in face value of debt, compared to $136.7 million, to purchase $3.8 billion in face value of debt in the same period of the prior year.

 

•

Available capacity under the Encore Capital Group revolving credit facility, subject to borrowing base and applicable debt covenants, was $187.0 million as of December 31, 2012. Total debt, consisting of the Encore revolving credit and term loan facility, the Propel facility, the senior secured notes, and capital lease obligations, was $706.0 million as of December 31, 2012, compared to $389.0 million as of December 31, 2011.

 

•

Revenue from receivable portfolios in the portfolio purchasing and recovery business, net of allowance adjustments, was $139.6 million, a 20% increase over the $116.5 million in the same period of the prior year. Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of net portfolio allowances, decreased to approximately 59% from 64% in the same period of the prior year.

 

•

Total operating expenses were $103.9 million, a 24% increase over the $83.6 million in the same period of the prior year. Adjusted operating expense per dollar collected for the portfolio purchasing and recovery business decreased to 43.2% compared to 44.1% 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 $134.7 million, a 28% increase over the $105.0 million in the same period of the prior year.

 

•

Total interest expense for the portfolio purchasing and recovery segment increased to $6.5 million, as compared to $5.0 million in the same period of the prior year.

 

•

Income from continuing operations was $20.2 million, or $0.79 per fully diluted share, compared to income from continuing operations of $17.2 million, or $0.67 per fully diluted share in the same period of the prior year.

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Encore Capital Group, Inc.

Page 2 of 8

 

For the full year of 2012:

 

•

Gross collections were $948.1 million, a 25% increase over the $761.2 million in 2011.

 

•

Investment in receivable portfolios in the portfolio purchasing and recovery business was $562.3 million, to purchase $18.5 billion in face value of debt, compared to $386.9 million, to purchase $11.7 billion in face value of debt in 2011.

 

•

Revenue from receivable portfolios in the portfolio purchasing and recovery business, net of allowance adjustments, was $545.4 million, a 22% increase over the $448.7 million in 2011.

 

•

Total operating expenses were $401.7 million, a 22% increase over the $328.6 million 2011. Adjusted operating expenses for the portfolio purchasing and recovery business per dollar collected decreased to 40.4% compared to 42.2% in 2011.

 

•

Adjusted EBITDA was $577.4 million, a 30% increase over the $443.9 million in 2011.

 

•

Income from continuing operations was $78.6 million or $3.04 per fully diluted share, compared to income from continuing operations of $60.6 million or $2.36 per fully diluted share in 2011.

 

•

Total stockholders’ equity per share, excluding the effects of discontinued operations, was $16.06 at December 31, 2012, an 11% increase over $14.45 at December 31, 2011.

Conference Call and Webcast

The Company will hold a conference call today at 2:00 p.m. 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 event via a listen-only telephone conference call line or the Internet. To access the live telephone conference call, please dial (877) 670-9781 or (408) 940-3818. The Conference ID is 90236787. To access the live webcast via the Internet, log on at the Investors page of the Company’s website at www.encorecapital.com.

Non-GAAP Financial Measures

The Company has included information concerning non-GAAP financial measures, including adjusted earnings per share, because management believes that investors regularly rely on non-GAAP adjusted earnings and adjusted earnings per share, to assess operating performance, in order to highlight trends in the Company’s business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. The Company has also 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. Additionally, the Company has included information related to adjusted operating expenses for the portfolio purchasing and recovery business, in order to facilitate a comparison of approximate cash costs to cash collections for the portfolio purchasing and recovery 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 the Company’s operating performance. Further, these non-GAAP financial measures, as presented by the Company, may not be comparable to similarly titled measures reported by other companies. The Company has included a reconciliation of adjusted earnings per share to reported earnings under GAAP, a reconciliation of adjusted EBITDA to reported earnings under GAAP, a reconciliation of adjusted operating expenses for the portfolio purchasing and recovery business to the GAAP measure total operating expenses, and a reconciliation of adjusted stockholders’ equity per share to reported stockholders’ equity under GAAP in the attached financial tables.

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Encore Capital Group, Inc.

Page 3 of 8

 

About Encore Capital Group, Inc.

Encore Capital Group is a leading provider of debt management and recovery solutions for consumers and property owners across a broad range of assets. Through its subsidiaries, the Company purchases portfolios of consumer receivables from major banks, credit unions, and utility providers, and partners with individuals as they repay their obligations and work toward financial recovery. Through its Propel Financial Services, LLC subsidiary, the Company assists property owners who are delinquent on their property taxes by structuring affordable monthly payment plans.

Headquartered in San Diego, Encore Capital Group is a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock of the Russell 2000, the S&P SmallCap 600, and the Wilshire 4500. More information about the Company can be found at www.encorecapital.com. The Company’s website and the information contained therein, is not incorporated into and is not a part of this press release.

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,” “believe,” “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, statements regarding our future operating results, performance, business plans or prospects. 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 its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors are discussed in the reports filed by the Company with the Securities and Exchange Commission, including the most recent reports on Forms 10-K, 10-Q and 8-K, each as it may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements.

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Encore Capital Group, Inc.

Page 4 of 8

 

Contact:

Encore Capital Group, Inc.

Paul Grinberg (858) 309-6904

paul.grinberg@encorecapital.com

Adam Sragovicz (858) 309-9509

adam.sragovicz@encorecapital.com

FINANCIAL TABLES FOLLOW

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Encore Capital Group, Inc.

Page 5 of 8

 

ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Financial Condition

(In Thousands, Except Par Value Amounts)

 

		December 31, 2012				December 31, 2011
Assets
Cash and cash equivalents		$	17,510			$	8,047
Investment in receivable portfolios, net			873,119				716,454
Deferred court costs, net			35,407				38,506
Property tax payment agreements receivable, net			135,100				—
Interest receivable			4,042				—
Property and equipment, net			23,223				17,796
Other assets			27,006				15,233
Goodwill			55,446				15,985
Identifiable intangible assets, net			487				462
Total assets		$	1,171,340			$	812,483
Liabilities and stockholders’ equity
Liabilities:
Accounts payable and accrued liabilities		$	45,450			$	29,628
Income tax payable			3,080				—
Deferred tax liabilities, net			8,236				15,709
Debt			706,036				388,950
Other liabilities			2,722				6,661
Total liabilities			765,524				440,948
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, 23,191 shares and 24,520 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively			232				245
Additional paid-in capital			88,029				123,406
Accumulated earnings			319,329				249,852
Accumulated other comprehensive loss			(1,774	)			(1,968	)
Total stockholders’ equity			405,816				371,535
Total liabilities and stockholders’ equity		$	1,171,340			$	812,483

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Encore Capital Group, Inc.

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ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Comprehensive Income

(In Thousands, Except Per Share Amounts)

 

		(Unaudited) Three Months Ended December 31,								Year Ended December 31,
		2012				2011				2012				2011
Revenues
Revenue from receivable portfolios, net		$	139,594			$	116,452			$	545,412			$	448,714
Tax lien transfer
Interest income			5,315				—				13,882				—
Interest expense			(1,297	)			—				(3,422	)			—
Net interest income			4,018				—				10,460				—
Total revenues			143,612				116,452				555,872				448,714
Operating expenses
Salaries and employee benefits			28,193				20,347				101,084				77,805
Cost of legal collections			45,500				39,686				168,703				157,050
Other operating expenses			10,085				8,764				48,939				35,708
Collection agency commissions			2,980				3,388				15,332				14,162
General and administrative expenses			15,467				10,289				61,798				39,760
Depreciation and amortization			1,647				1,165				5,840				4,081
Total operating expenses			103,872				83,639				401,696				328,566
Income from operations			39,740				32,813				154,176				120,148
Other (expense) income
Interest expense			(6,540	)			(4,979	)			(25,564	)			(21,116	)
Other income (expense)			328				(181	)			1,713				(363	)
Total other expense			(6,212	)			(5,160	)			(23,851	)			(21,479	)
Income from continuing operations before income taxes			33,528				27,653				130,325				98,669
Provision for income taxes			(13,361	)			(10,418	)			(51,754	)			(38,076	)
Income from continuing operations			20,167				17,235				78,571				60,593
(Loss) income from discontinued operations, net of tax			—				(101	)			(9,094	)			365
Net income		$	20,167			$	17,134			$	69,477			$	60,958
Weighted average shares outstanding:
Basic			24,639				24,689				24,855				24,572
Diluted			25,565				25,657				25,836				25,690
Basic earnings (loss) per share from:
Continuing operations		$	0.82			$	0.70			$	3.16			$	2.47
Discontinued operations		$	0.00			$	(0.01	)		$	(0.36	)		$	0.01
Net basic earnings per share		$	0.82			$	0.69			$	2.80			$	2.48
Diluted earnings (loss) per share from:
Continuing operations		$	0.79			$	0.67			$	3.04			$	2.36
Discontinued operations		$	0.00			$	0.00			$	(0.35	)		$	0.01
Net diluted earnings per share		$	0.79			$	0.67			$	2.69			$	2.37
Other comprehensive (loss) gain:
Unrealized (loss) gain on derivative instruments		$	(791	)		$	(870	)		$	414			$	(2,964	)
Income tax benefit (provision) related to unrealized (loss) gain on derivative instruments			252				26				(220	)			845
Other comprehensive (loss) gain, net of tax			(539	)			(844	)			194				(2,119	)
Comprehensive income		$	19,628			$	16,290			$	69,671			$	58,839

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Encore Capital Group, Inc.

Page 7 of 8

 

ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Cash Flows

(In Thousands)

 

		Year Ended December 31,
		2012				2011				2010
Operating activities:
Net income		$	69,477			$	60,958			$	49,052
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			5,840				4,661				3,199
Impairment charge for goodwill and identifiable intangible assets			10,400				—				—
Amortization of loan costs and premium on property tax payment agreements receivable			3,268				1,833				3,682
Stock-based compensation expense			8,794				7,709				6,010
Income tax provision (less than) in excess of income tax payments			(7,474	)			(1,917	)			646
Excess tax benefit from stock-based payment arrangements			(4,123	)			(5,101	)			(3,249	)
Loss on sale of discontinued operations			2,416				—				—
(Reversal) provision for allowances on receivable portfolios, net			(4,221	)			10,823				22,209
Changes in operating assets and liabilities
Deferred court costs			3,099				(6,348	)			(6,201	)
Other assets			(206	)			2,179				(1,390	)
Prepaid income tax and income taxes payable			7,060				6,495				(1,782	)
Accounts payable, accrued liabilities and other liabilities			4,190				3,287				3,299
Net cash provided by operating activities			98,520				84,579				75,475
Investing activities:
Cash paid for acquisition, net of cash acquired			(186,731	)			—				—
Purchases of receivable portfolios			(562,335	)			(386,850	)			(361,957	)
Collections applied to investment in receivable portfolios, net			406,815				301,474				217,891
Proceeds from put-backs of receivable portfolios			3,076				2,852				3,981
Originations of property tax payment agreements receivable			(34,036	)			—				—
Collections applied to property tax payment agreements receivable, net			35,706				—				—
Purchases of property and equipment			(6,265	)			(5,564	)			(2,722	)
Net cash used in investing activities			(343,770	)			(88,088	)			(142,807	)
Financing activities:
Payment of loan costs			(12,359	)			(840	)			(6,248	)
Proceeds from senior secured notes			—				25,000				50,000
Repayment of senior secured notes			(2,500	)			—				—
Proceeds from revolving credit facility and term loan facility			508,399				121,000				125,500
Repayment of revolving credit facility and term loan facility			(289,673	)			(143,000	)			(58,500	)
Proceeds from issuance of convertible notes			115,000				—				—
Repayment of convertible notes			—				—				(42,920	)
Purchases of convertible hedge instruments			(22,669	)			—				—
Proceeds from sale of warrants			11,028				—				—
Repurchase of common stock			(49,270	)			—				—
Proceeds from net settlement of certain call options			—				—				524
Proceeds from exercise of stock options			1,847				1,263				2,118
Taxes paid related to net share settlement of equity awards			(2,969	)			(3,891	)			(2,024	)
Excess tax benefit from stock-based payment arrangements			4,123				5,101				3,249
Repayment of capital lease obligations			(6,244	)			(3,982	)			(1,850	)
Net cash provided by financing activities			254,713				651				69,849
Net increase (decrease) in cash and cash equivalents			9,463				(2,858	)			2,517
Cash and cash equivalents, beginning of period			8,047				10,905				8,388
Cash and cash equivalents, end of period		$	17,510			$	8,047			$	10,905
Supplemental disclosures of cash flow information:
Cash paid for interest		$	25,218			$	19,038			$	15,652
Cash paid for income taxes			46,297				32,125				30,125
Supplemental schedule of non-cash investing and financing activities:
Fixed assets acquired through capital lease		$	5,287			$	2,949			$	4,317

 

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Encore Capital Group, Inc.

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ENCORE CAPITAL GROUP, INC.

Supplemental Financial Information

Reconciliation of Adjusted Earnings From Continuing Operations to GAAP Net Income From Continuing Operations, Adjusted EBITDA to GAAP Net Income, Adjusted Operating Expenses For The Portfolio Purchasing And Recovery Business to GAAP Total Operating Expenses, and Adjusted Stockholders’ Equity Per Share to GAAP Total Stockholders’ Equity

(In Thousands, Except Per Share amounts) (Unaudited)

 

		Three Months Ended December 31,																Year Ended December 31,
		2012								2011								2012								2011
		$				Per Diluted Share				$				Per Diluted Share				$				Per Diluted Share				$				Per Diluted Share
GAAP net income from continuing operations, as reported		$	20,167			$	0.79			$	17,235			$	0.67			$	78,571			$	3.04			$	60,593			$	2.36
Adjustment:
Convertible notes non-cash interest and issuance cost amortization, net of tax			191			$	0.01				—				—				191			$	0.01				—				—
Adjusted earnings from continuing operations		$	20,358			$	0.80			$	17,235			$	0.67			$	78,762			$	3.05			$	60,593			$	2.36

 

		Three Months Ended December 31,								Year Ended December 31,
		2012				2011				2012				2011
GAAP net income, as reported		$	20,167			$	17,134			$	69,477			$	60,958
Adjustments:
Loss (income) from discontinued operations, net of tax			—				101				9,094				(365	)
Interest expense			6,540				4,979				25,564				21,116
Provision for income taxes			13,361				10,418				51,754				38,076
Depreciation and amortization			1,647				1,165				5,840				4,081
Amount applied to principal on receivable portfolios			90,895				69,462				402,594				312,297
Stock-based compensation expense			2,084				1,729				8,794				7,709
Acquisition related expenses			—				—				4,263				—
Adjusted EBITDA		$	134,694			$	104,988			$	577,380			$	443,872

 

		Three Months Ended December 31,								Year Ended December 31,
		2012				2011				2012				2011
GAAP total operating expenses, as reported		$	103,872			$	83,639			$	401,696			$	328,566
Adjustments:
Stock-based compensation expense			(2,084	)			(1,729	)			(8,794	)			(7,709	)
Tax lien transfer segment operating expenses			(2,113	)			—				(5,681	)			—
Acquisition related expenses			—				—				(4,263	)			—
Adjusted operating expenses for the portfolio purchasing and recovery business		$	99,675			$	81,910			$	382,958			$	320,857

 

		December 31, 2012				December 31, 2011
GAAP stockholders’ equity, as reported		$	405,816			$	371,535
Effect of discontinued operations			9,094				(365	)
Adjusted stockholders’ equity		$	414,910			$	371,170
Diluted shares outstanding			25,836				25,690
Adjusted stockholders’ equity per share		$	16.06			$	14.45

SOURCE Encore Capital Group, Inc.

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