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8-K-EarningsRelease20150810




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): August 10, 2015
______________________
ENCORE CAPITAL GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
______________________
Delaware
(State or Other Jurisdiction of Incorporation)
000-26489
(Commission
File Number)
48-1090909
(IRS Employer
Identification No.)
3111 Camino Del Rio North, Suite 103, San Diego, California
(Address of Principal Executive Offices)
92108
(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):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))












Item 2.02.    Results of Operations and Financial Condition.

On August 10, 2015, Encore Capital Group, Inc. issued a press release announcing its financial results for the second quarter ended June 30, 2015. 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, as amended, 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.
Exhibit Number
Description
99.1
Press release dated August 10, 2015






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: August 10, 2015
/s/ Jonathan C. Clark
 
Jonathan C. Clark
 
Executive Vice President, Chief Financial Officer and Treasurer






EXHIBIT INDEX
Exhibit Number
Description
99.1
Press release dated August 10, 2015










ECPG Q2 2015 Earnings Press Release
 
Exhibit 99.1

Encore Capital Group Announces Second Quarter 2015 Financial Results;
Q2 Capital Deployments Exceed $500 Million

•
GAAP EPS increases 20% to $1.03
•
Non-GAAP Economic EPS increases 15% to record $1.27
•
Encore deploys $505 million worldwide, $290 million in Europe
•
Collections increase 7% to record $437 million
•
Adjusted EBITDA increases 8% to record $277 million
•
Estimated Remaining Collections increase 16% to $5.7 billion
SAN DIEGO, August 10, 2015 -- Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company providing debt recovery solutions for consumers and property owners across a broad range of assets, today reported consolidated financial results for the second quarter ended June 30, 2015.
“Encore delivered strong financial performance in the second quarter as we established new records for total collections, revenues, Estimated Remaining Collections and non-GAAP Economic EPS. We deployed more than $500 million of capital in the second quarter, with more than half of the total applied to purchasing debt internationally, demonstrating the diversity of our global business,” said Kenneth A. Vecchione, President and Chief Executive Officer. “We also generated a record level of cash flow in the second quarter as our Adjusted EBITDA grew to $277 million, with trailing 12-month Adjusted EBITDA topping $1 billion.”
Financial Highlights for the Second Quarter of 2015:
•
Estimated Remaining Collections (ERC) grew 16% to $5.7 billion, compared to $4.9 billion at June 30, 2014.
•
Gross collections from the portfolio purchasing and recovery business grew 7% to a record $437 million, compared to $409 million in the same period of the prior year.
•
Investment in receivable portfolios in the portfolio purchasing and recovery business was $419 million, to purchase $5.5 billion in face value of debt, compared to $226 million, to purchase $3.1 billion in face value of debt in the same period of the prior year. Encore’s subsidiary Propel Financial Services also purchased $86 million of tax liens during the second quarter of 2015, raising Encore’s total deployment in the quarter to $505 million.
•
Total revenues increased 8% to a record $290 million, compared to $269 million in the same period of the prior year.
•
Total operating expenses increased 7% to $203 million, compared to $191 million in the same period of the prior year. Adjusted operating expenses (defined as operating expenses excluding stock-based compensation expense, expenses related to non-portfolio purchasing and recovery business, one-time charges, and acquisition, integration and restructuring related expenses) increased 6% to $164 million, compared to $155 million in the same period of the prior year. Adjusted operating expenses per dollar collected for the portfolio purchasing and recovery business decreased to 37.6%, compared to 37.9% in the same period of the prior year.
•
Adjusted EBITDA (defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expenses, portfolio amortization, one-time items, and acquisition, integration and restructuring related expenses), increased 8% to $277 million, compared to $256 million in the same period of the prior year.
•
Total interest expense increased to $46.3 million, as compared to $43.2 million in the same period of the prior year, reflecting the financing of Encore’s recent acquisitions.

Encore Capital Group, Inc.
Page 2 of 8



•
Net income attributable to Encore was $27.7 million, or $1.03 per fully diluted share, compared to net income attributable to Encore of $23.6 million, or $0.86 per fully diluted share, in the same period of the prior year.
•
Adjusted income attributable to Encore (defined as net income attributable to Encore excluding the noncontrolling interest, non-cash interest and issuance cost amortization, one-time items, and acquisition, integration and restructuring related expenses, all net of tax) increased 14% to $33.2 million, compared to adjusted income attributable to Encore of $29.1 million in the same period of the prior year.
•
Adjusted income attributable to Encore per share (also referred to as Economic EPS) grew 15% to $1.27, compared to $1.10 in the same period of the prior year. In the second quarter, Economic EPS adjusts for approximately 0.8 million shares associated with convertible notes that will not be issued as a result of certain hedge and warrant transactions, but are reflected in the fully diluted share count for accounting purposes.
•
Available capacity under Encore’s revolving credit facility, subject to borrowing base and applicable debt covenants, was $126.4 million as of June 30, 2015. Total debt was $3.1 billion as of June 30, 2015, compared to $2.8 billion as of December 31, 2014.


Conference Call and Webcast
The Company will hold a conference call today, August 10, 2015, at 5:30 a.m. Pacific time / 8:30 a.m. Eastern time to discuss second quarter financial 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 (855) 541-0982 or (704) 288-0606. The Conference ID is 90056856. To access the live webcast via the Internet, log on to the Investors page of the Company’s website at www.encorecapital.com.

Non-GAAP Financial Measures
This news release includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company has included adjusted income attributable to Encore and adjusted income attributable to Encore per share (also referred to as economic EPS when adjusted for certain shares associated with our convertible notes that will not be issued but are reflected in the fully diluted share count for accounting purposes) because management uses this measure 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 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 revolving credit facility, 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 adjusted operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for the portfolio purchasing and recovery business in the periods presented. Adjusted income attributable to Encore, adjusted income attributable to Encore per share/economic EPS, adjusted EBITDA, and adjusted operating expenses have not been prepared in accordance with GAAP. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income, net income per share, 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

Encore Capital Group, Inc.
Page 3 of 8



titled measures reported by other companies. The Company has attached to this news release a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

About Encore Capital Group, Inc.
Encore Capital Group is an international specialty finance company that provides debt recovery solutions for consumers and property owners across a broad range of assets. Through its subsidiaries, Encore purchases portfolios of consumer receivables from major banks, credit unions, municipalities and utility providers. Its Propel Financial Services subsidiary also helps home and business owners resolve property tax debt and avoid foreclosure through affordable monthly payment plans. 

Encore partners with individuals as they repay their obligations, helping them on the road to financial recovery and ultimately improving their economic well-being. Encore is the first and only company of its kind to operate with a Consumer Bill of Rights that provides industry-leading commitments to consumers. Headquartered in San Diego, the company is a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock of the Russell 2000, the S&P Small Cap 600 and the Wilshire 4500. More information about Encore can be found at http://www.encorecapital.com. More information about the Company's Cabot Credit Management subsidiary can be found at http://www.cabotcm.com. Information found on the Company’s website or Cabot's website is not incorporated by reference.
 


Encore Capital Group, Inc.
Page 4 of 8



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 “will,” “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 and 10-Q, as they may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements.

Contact:
Encore Capital Group, Inc.

Bruce Thomas (858) 309-6442
bruce.thomas@encorecapital.com



FINANCIAL TABLES FOLLOW


Encore Capital Group, Inc.
Page 5 of 8



ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)
 
June 30,
2015
 
December 31,
2014
Assets
 
 
 
Cash and cash equivalents
$
138,158

 
$
124,163

Investment in receivable portfolios, net
2,351,767

 
2,143,560

Receivables secured by property tax liens, net
316,299

 
259,432

Property and equipment, net
66,413

 
66,969

Deferred court costs, net
71,724

 
60,412

Other assets
199,689

 
197,666

Goodwill
969,928

 
897,933

Total assets
$
4,113,978

 
$
3,750,135

Liabilities and equity
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
214,621

 
$
231,967

Debt
3,134,187

 
2,773,554

Other liabilities
83,877

 
79,675

Total liabilities
3,432,685

 
3,085,196

Commitments and contingencies


 


Redeemable noncontrolling interest
27,924

 
28,885

Redeemable equity component of convertible senior notes
7,625

 
9,073

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, 25,237 shares and 25,794 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively
252

 
258

Additional paid-in capital
101,288

 
125,310

Accumulated earnings
555,436

 
498,354

Accumulated other comprehensive loss
(14,796
)
 
(922
)
Total Encore Capital Group, Inc. stockholders’ equity
642,180

 
623,000

Noncontrolling interest
3,564

 
3,981

Total equity
645,744

 
626,981

Total liabilities, redeemable equity and equity
$
4,113,978

 
$
3,750,135

The following table includes assets that can only be used to settle the liabilities of the Company’s consolidated variable interest entities (“VIEs”) and the creditors of the VIEs have no recourse to the Company. These assets and liabilities are included in the consolidated statements of financial condition above.
 
June 30,
2015
 
December 31,
2014
Assets
 
 
 
Cash and cash equivalents
$
39,518

 
$
44,996

Investment in receivable portfolios, net
1,244,636

 
993,462

Receivables secured by property tax liens, net
96,212

 
108,535

Property and equipment, net
19,715

 
15,957

Deferred court costs, net
29,016

 
17,317

Other assets
46,062

 
80,264

Goodwill
742,272

 
671,434

Liabilities
 
 
 
Accounts payable and accrued liabilities
$
119,187

 
$
137,201

Debt
1,823,897

 
1,556,956

Other liabilities
18,367

 
8,724


Encore Capital Group, Inc.
Page 6 of 8



ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
Three Months Ended 
 June 30,
 
2015
 
2014
Revenues
 
 
 
Revenue from receivable portfolios, net
$
270,301

 
$
248,231

Other revenues
13,112

 
14,149

Net interest income
6,943

 
6,815

Total revenues
290,356

 
269,195

Operating expenses
 
 
 
Salaries and employee benefits
67,545

 
64,355

Cost of legal collections
57,076

 
50,029

Other operating expenses
23,015

 
23,712

Collection agency commissions
8,466

 
7,482

General and administrative expenses
39,166

 
38,282

Depreciation and amortization
8,084

 
6,829

Total operating expenses
203,352

 
190,689

Income from operations
87,004

 
78,506

Other (expense) income
 
 
 
Interest expense
(46,250
)
 
(43,218
)
Other income
395

 
75

Total other expense
(45,855
)
 
(43,143
)
Income before income taxes
41,149

 
35,363

Provision for income taxes
(15,964
)
 
(14,010
)
Net income
25,185

 
21,353

Net loss attributable to noncontrolling interest
2,472

 
2,208

Net income attributable to Encore Capital Group, Inc. stockholders
$
27,657

 
$
23,561

 
 
 
 
Earnings per share attributable to Encore Capital Group, Inc.:
 
 
 
 
 
 
 
Basic
$
1.07

 
$
0.91

Diluted
$
1.03

 
$
0.86

 
 
 
 
Weighted average shares outstanding:
 
 
 
Basic
25,885

 
25,798

Diluted
26,919

 
27,492


Encore Capital Group, Inc.
Page 7 of 8



ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
 
Six Months Ended 
 June 30,
 
2015
 
2014
Operating activities:
 
 
 
Net income
$
55,152

 
$
40,183

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
16,434

 
12,946

Non-cash interest expense, net
18,436

 
13,974

Stock-based compensation expense
12,103

 
9,551

Deferred income taxes
765

 
9,616

Excess tax benefit from stock-based payment arrangements
(1,479
)
 
(10,756
)
Reversal of allowances on receivable portfolios, net
(7,219
)
 
(6,652
)
Changes in operating assets and liabilities
 
 
 
Deferred court costs and other assets
(21,819
)
 
(9,025
)
Prepaid income tax and income taxes payable
(23,648
)
 
(9,038
)
Accounts payable, accrued liabilities and other liabilities
(1,313
)
 
1,574

Net cash provided by operating activities
47,412

 
52,373

Investing activities:
 
 
 
Cash paid for acquisitions, net of cash acquired
(237,873
)
 
(303,532
)
Purchases of receivable portfolios, net of put-backs
(356,302
)
 
(475,121
)
Collections applied to investment in receivable portfolios, net
334,587

 
325,451

Originations and purchases of receivables secured by tax liens
(139,820
)
 
(85,014
)
Collections applied to receivables secured by tax liens
76,876

 
53,216

Purchases of property and equipment
(10,642
)
 
(8,943
)
Other, net
1,292

 
—

Net cash used in investing activities
(331,882
)
 
(493,943
)
Financing activities:
 
 
 
Payment of loan costs
(6,574
)
 
(14,673
)
Proceeds from credit facilities
737,648

 
679,872

Repayment of credit facilities
(354,362
)
 
(732,857
)
Proceeds from senior secured notes
—

 
288,645

Repayment of senior secured notes
(7,500
)
 
(7,500
)
Proceeds from issuance of convertible senior notes
—

 
161,000

Proceeds from issuance of securitized notes
—

 
134,000

Repayment of securitized notes
(22,694
)
 
(8,793
)
Purchases of convertible hedge instruments
—

 
(33,576
)
Repurchase of common stock
(33,185
)
 
(16,815
)
Taxes paid related to net share settlement of equity awards
(5,260
)
 
(18,375
)
Excess tax benefit from stock-based payment arrangements
1,479

 
10,756

Other, net
(5,757
)
 
1,382

Net cash provided by financing activities
303,795

 
443,066

Net increase in cash and cash equivalents
19,325

 
1,496

Effect of exchange rate changes on cash
(5,330
)
 
(4,302
)
Cash and cash equivalents, beginning of period
124,163

 
126,213

Cash and cash equivalents, end of period
$
138,158

 
$
123,407

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
50,833

 
$
54,672

Cash paid for income taxes, net
58,510

 
37,805

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Fixed assets acquired through capital lease
$
1,290

 
$
3,766


Encore Capital Group, Inc.
Page 8 of 8



ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted Income Attributable to Encore to GAAP Net Income Attributable to Encore, Adjusted EBITDA to GAAP Net Income, and Adjusted Operating Expenses Related to Portfolio Purchasing and Recovery Business to GAAP Total Operating Expenses
(In Thousands, Except Per Share amounts) (Unaudited)
 
Three Months Ended June 30,
 
2015
 
2014
 
$
 
Per Diluted
Share—
Accounting
 
Per  Diluted
Share—
Economic
 
$
 
Per Diluted
Share—
Accounting
 
Per  Diluted
Share—
Economic
GAAP net income attributable to Encore, as reported
$
27,657

 
$
1.03

 
$
1.06

 
$
23,561

 
$
0.86

 
$
0.89

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
Convertible notes non-cash interest and issuance cost amortization, net of tax
1,685

 
0.06

 
0.06

 
1,694

 
0.06

 
0.06

Acquisition, integration and restructuring related expenses, net of tax
3,833

 
0.14

 
0.15

 
3,836

 
0.14

 
0.15

Adjusted income attributable to Encore
$
33,175

 
$
1.23

 
$
1.27

 
$
29,091

 
$
1.06

 
$
1.10



 
Three Months Ended June 30,
2015
 
2014
GAAP net income, as reported
$
25,185

 
$
21,353

Adjustments:
 
 
 
Interest expense
46,250

 
43,218

Provision for income taxes
15,964

 
14,010

Depreciation and amortization
8,084

 
6,829

Amount applied to principal on receivable portfolios
167,024

 
161,048

Stock-based compensation expense
6,198

 
4,715

Acquisition, integration and restructuring related expenses
7,900

 
4,645

Adjusted EBITDA
$
276,605

 
$
255,818

 
Three Months Ended June 30,
2015
 
2014
GAAP total operating expenses, as reported
$
203,352

 
$
190,689

Adjustments:
 
 
 
Stock-based compensation expense
(6,198
)
 
(4,715
)
Operating expenses related to non-portfolio purchasing and recovery business
(24,928
)
 
(26,409
)
Acquisition, integration and restructuring related expenses
(7,900
)
 
(4,645
)
Adjusted operating expenses related to portfolio purchasing and recovery business
$
164,326

 
$
154,920