View:
Download DOC
Download PDF
Download XLS
8-K




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): November 5, 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 November 5, 2015, Encore Capital Group, Inc. issued a press release announcing its financial results for the third quarter ended September 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 November 5, 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: November 5, 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 November 5, 2015










Exhibit
 
Exhibit 99.1

Encore Capital Group Announces Third Quarter 2015 Financial Results;
Global Expansion Continues to Fuel Growth

•
Non-GAAP Economic EPS increases 15% to record $1.34
•
GAAP loss of $0.43 per share reflects one-time charge related to CFPB settlement
•
Adjusted EBITDA increases 7% to $268 million
•
Estimated Remaining Collections increase 10% to $5.7 billion
•
Encore enters Australia and New Zealand through acquisition of Baycorp
SAN DIEGO, November 5, 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 third quarter ended September 30, 2015.
“Encore delivered strong financial performance in the third quarter as we established new records for non-GAAP Economic EPS, which grew 15% compared to the same quarter a year ago, and adjusted income, which grew 12%. Accounts outside of the United States generated approximately one-third of our collections in the quarter, reflecting Encore’s continued progress in expanding our business internationally,” said Kenneth A. Vecchione, President and Chief Executive Officer. “In addition, we recently completed our acquisition of a controlling interest in Baycorp, a leader in debt recovery solutions throughout Australia and New Zealand. These represent two new markets for Encore that possess promising opportunities to continue to diversify geographically while growing and consolidating market share.”
Financial Highlights for the Third Quarter of 2015:
•
Estimated Remaining Collections (ERC) grew 10% to $5.7 billion, compared to $5.1 billion at September 30, 2014.
•
Gross collections from the portfolio purchasing and recovery business grew 4% to $422 million, compared to $407 million in the same period of the prior year.
•
Investment in receivable portfolios in the portfolio purchasing and recovery business was $187 million, to purchase $2.1 billion in face value of debt, compared to $300 million, to purchase $4.0 billion in face value of debt in the same period of the prior year. Encore’s subsidiary Propel Financial Services also purchased $28 million of tax liens during the third quarter of 2015, raising Encore’s total deployment in the quarter to $215 million.
•
Total revenues increased 5% to $288 million, compared to $273 million in the same period of the prior year. Excluding an allowance related to the CFPB settlement, revenues grew 8% compared to the third quarter of 2014.
•
Total operating expenses increased 34% to $253 million, including a one-time charge associated with regulatory matters, the majority of which reflected Encore’s recent settlement with the Consumer Financial Protection Bureau. Total operating expenses were $189 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 4% to $165 million, compared to $158 million in the same period of the prior year. Adjusted operating expenses per dollar collected for the portfolio purchasing and recovery business increased to 39.2%, compared to 38.9% 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 7% to $268 million, compared to $252 million in the same period of the prior year.

Encore Capital Group, Inc.
Page 2 of 9



•
Total interest expense increased to $47.8 million, as compared to $43.5 million in the same period of the prior year, reflecting the financing of Encore’s recent acquisitions.
•
Net loss attributable to Encore was $11.0 million, or $0.43 per fully diluted share, primarily as a result of the one-time charge associated with regulatory matters. Net income attributable to Encore in the same period of the prior year was $30.3 million, or $1.11 per fully diluted share.
•
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 12% to $34.5 million, compared to adjusted income attributable to Encore of $30.8 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 $1.34, compared to $1.17 in the same period of the prior year. In the third 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 $116.6 million as of September 30, 2015. Total debt was $3.1 billion as of September 30, 2015, compared to $2.8 billion as of December 31, 2014.

Conference Call and Webcast
The Company will hold a conference call today, November 5, 2015, at 2:00 p.m. Pacific time / 5:00 p.m. Eastern time to discuss third 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 (877) 670-9781 or (631) 456-4378. The Conference ID is 66634621. 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,

Encore Capital Group, Inc.
Page 3 of 9



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 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 9



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:

Bruce Thomas
Vice President, Investor Relations
Encore Capital Group, Inc.
(858) 309-6442
bruce.thomas@encorecapital.com



FINANCIAL TABLES FOLLOW


Encore Capital Group, Inc.
Page 5 of 9



ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)
 
September 30,
2015
 
December 31,
2014
Assets
 
 
 
Cash and cash equivalents
$
175,220

 
$
124,163

Investment in receivable portfolios, net
2,323,224

 
2,143,560

Receivables secured by property tax liens, net
297,592

 
259,432

Property and equipment, net
63,042

 
66,969

Deferred court costs, net
74,054

 
60,412

Other assets
229,697

 
197,666

Goodwill
940,181

 
897,933

Total assets
$
4,103,010

 
$
3,750,135

Liabilities and equity
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
239,151

 
$
231,967

Debt
3,116,444

 
2,773,554

Other liabilities
87,735

 
79,675

Total liabilities
3,443,330

 
3,085,196

Commitments and contingencies


 


Redeemable noncontrolling interest
26,934

 
28,885

Redeemable equity component of convertible senior notes
6,881

 
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, 25,274 shares and 25,794 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively
253

 
258

Additional paid-in capital
106,454

 
125,310

Accumulated earnings
544,477

 
498,354

Accumulated other comprehensive loss
(29,279
)
 
(922
)
Total Encore Capital Group, Inc. stockholders’ equity
621,905

 
623,000

Noncontrolling interest
3,960

 
3,981

Total equity
625,865

 
626,981

Total liabilities, redeemable equity and equity
$
4,103,010

 
$
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.
 
September 30,
2015
 
December 31,
2014
Assets
 
 
 
Cash and cash equivalents
$
69,463

 
$
44,996

Investment in receivable portfolios, net
1,194,341

 
993,462

Receivables secured by property tax liens, net
88,206

 
108,535

Property and equipment, net
18,524

 
15,957

Deferred court costs, net
32,244

 
17,317

Other assets
43,733

 
80,264

Goodwill
715,877

 
671,434

Liabilities
 
 
 
Accounts payable and accrued liabilities
$
105,904

 
$
137,201

Debt
1,773,831

 
1,556,956

Other liabilities
21,411

 
8,724


Encore Capital Group, Inc.
Page 6 of 9



ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
Three Months Ended 
 September 30,
 
2015
 
2014
Revenues
 
 
 
Revenue from receivable portfolios, net
$
265,523

 
$
251,785

Other revenues
14,558

 
13,445

Net interest income
7,715

 
8,052

Total revenues
287,796

 
273,282

Operating expenses
 
 
 
Salaries and employee benefits
64,976

 
61,175

Cost of legal collections
58,760

 
53,742

Other operating expenses
23,953

 
22,061

Collection agency commissions
9,381

 
9,517

General and administrative expenses
88,002

 
35,532

Depreciation and amortization
8,235

 
6,933

Total operating expenses
253,307

 
188,960

Income from operations
34,489

 
84,322

Other expense
 
 
 
Interest expense
(47,816
)
 
(43,498
)
Other expense
(924
)
 
(532
)
Total other expense
(48,740
)
 
(44,030
)
(Loss) income before income taxes
(14,251
)
 
40,292

Benefit (provision) for income taxes
4,887

 
(10,154
)
Net (loss) income
(9,364
)
 
30,138

Net (income) loss attributable to noncontrolling interest
(1,595
)
 
197

Net (loss) income attributable to Encore shareholders
$
(10,959
)
 
$
30,335

 
 
 
 
(Loss) earnings per share attributable to Encore Capital Group, Inc.:
 
 
 
 
 
 
 
Basic
$
(0.43
)
 
$
1.17

Diluted
$
(0.43
)
 
$
1.11

 
 
 
 
Weighted average shares outstanding:
 
 
 
Basic
25,450

 
25,879

Diluted
25,450

 
27,332


Encore Capital Group, Inc.
Page 7 of 9



ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
 
Nine Months Ended 
 September 30,
 
2015
 
2014
Operating activities:
 
 
 
Net income
$
45,788

 
$
70,321

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
24,669

 
19,879

Non-cash interest expense, net
27,455

 
20,989

Stock-based compensation expense
17,259

 
13,560

Deferred income taxes
(257
)
 
(11,863
)
Excess tax benefit from stock-based payment arrangements
(1,705
)
 
(11,422
)
Reversal of allowances on receivable portfolios, net
(3,958
)
 
(12,455
)
Changes in operating assets and liabilities
 
 
 
Deferred court costs and other assets
(41,354
)
 
(16,498
)
Prepaid income tax and income taxes payable
(45,776
)
 
2,402

Accounts payable, accrued liabilities and other liabilities
41,260

 
23,850

Net cash provided by operating activities
63,381

 
98,763

Investing activities:
 
 
 
Cash paid for acquisitions, net of cash acquired
(236,214
)
 
(495,519
)
Purchases of receivable portfolios, net of put-backs
(549,957
)
 
(666,470
)
Collections applied to investment in receivable portfolios, net
488,174

 
488,086

Originations and purchases of receivables secured by tax liens
(167,739
)
 
(108,739
)
Collections applied to receivables secured by tax liens
123,407

 
93,986

Purchases of property and equipment
(15,754
)
 
(13,598
)
Other, net
3,178

 
(1,987
)
Net cash used in investing activities
(354,905
)
 
(704,241
)
Financing activities:
 
 
 
Payment of loan costs
(7,316
)
 
(15,271
)
Proceeds from credit facilities
903,319

 
993,449

Repayment of credit facilities
(466,745
)
 
(878,883
)
Proceeds from senior secured notes
—

 
288,645

Repayment of senior secured notes
(11,250
)
 
(11,250
)
Proceeds from issuance of convertible senior notes
—

 
161,000

Proceeds from issuance of securitized notes
—

 
134,000

Repayment of securitized notes
(32,324
)
 
(20,599
)
Repayment of preferred equity certificates, net
—

 
(702
)
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
(6,050
)
 
(19,356
)
Excess tax benefit from stock-based payment arrangements
1,705

 
11,422

Other, net
(2,299
)
 
987

Net cash provided by financing activities
345,855

 
593,051

Net increase in cash and cash equivalents
54,331

 
(12,427
)
Effect of exchange rate changes on cash
(3,274
)
 
1,654

Cash and cash equivalents, beginning of period
124,163

 
126,213

Cash and cash equivalents, end of period
$
175,220

 
$
115,440

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
114,731

 
$
120,125

Cash paid for income taxes, net
72,306

 
54,452

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

 
$
6,852


Encore Capital Group, Inc.
Page 8 of 9



ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted Income Attributable to Encore to GAAP Net (Loss) Income Attributable to Encore, Adjusted EBITDA to GAAP Net (Loss) 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 September 30,
 
2015
 
2014
 
$
 
Per Diluted
Share—
Accounting
 
Per Diluted
Share—
Economic
 
$
 
Per Diluted
Share—
Accounting
 
Per Diluted
Share—
Economic
GAAP net (loss) income attributable to Encore, as reported
$
(10,959
)
 
$
(0.43
)
 
$
(0.43
)
 
$
30,335

 
$
1.11

 
$
1.15

Effect of diluted potential shares excluded from loss per share calculation(1)
—

 
0.01

 
—

 
—

 
—

 
—

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
Convertible notes non-cash interest and issuance cost amortization, net of tax
1,755

 
0.07

 
0.07

 
1,773

 
0.06

 
0.07

CFPB / regulatory one-time charges, net of tax
42,554

 
1.61

 
1.66

 
—

 
—

 
—

Acquisition, integration and restructuring related expenses, net of tax
1,125

 
0.04

 
0.04

 
1,001

 
0.04

 
0.04

Net effect of non-recurring tax adjustments
—

 
—

 
—

 
(2,291
)
 
(0.08
)
 
(0.09
)
Adjusted income attributable to Encore
$
34,475

 
$
1.30

 
$
1.34

 
$
30,818

 
$
1.13

 
$
1.17

________________________
(1)
The shares used to calculate GAAP net loss per diluted share - accounting and GAAP net loss per diluted share - economic during the three months ended September 30, 2015 exclude dilutive potential common shares because of their anti-dilutive effect.
 
Three Months Ended 
 September 30,
2015
 
2014
GAAP net (loss) income, as reported
$
(9,364
)
 
$
30,138

Adjustments:
 
 
 
Loss from discontinued operations, net of tax
—

 
—

Interest expense
47,816

 
43,498

(Benefit) provision for income taxes
(4,887
)
 
10,154

Depreciation and amortization
8,235

 
6,933

Amount applied to principal on receivable portfolios
156,229

 
155,435

Stock-based compensation expense
5,156

 
4,009

CFPB / regulatory one-time charges
63,019

 
—

Acquisition, integration and restructuring related expenses
2,246

 
1,622

Adjusted EBITDA
$
268,450

 
$
251,789


Encore Capital Group, Inc.
Page 9 of 9



 
Three Months Ended 
 September 30,
2015
 
2014
GAAP total operating expenses, as reported
$
253,307

 
$
188,960

Adjustments:
 
 
 
Stock-based compensation expense
(5,156
)
 
(4,009
)
Operating expenses related to non-portfolio purchasing and recovery business
(25,946
)
 
(25,058
)
Operating expenses related to CFPB / regulatory one-time charges
(54,697
)
 
—

Acquisition, integration and restructuring related expenses
(2,246
)
 
(1,622
)
Adjusted operating expenses related to portfolio purchasing and recovery business
$
165,262

 
$
158,271