View:
Download DOC
Download PDF
Download XLS
Document




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): May 4, 2017
______________________
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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨







Item 2.02.    Results of Operations and Financial Condition.

On May 4, 2017, Encore Capital Group, Inc. issued a press release announcing its financial results for the quarter ended March 31, 2017. 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 May 4, 2017






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 4, 2017
/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 May 4, 2017










Exhibit
https://cdn.kscope.io/9b60dbe9959c24d8941ac959bcbd4229-encorelogohorizontalweba02.jpg
 
Exhibit 99.1

Encore Capital Group Announces First Quarter 2017 Financial Results

•
Improved pricing and supply in the U.S. market driving better returns
•
Higher purchase price multiples reflect more efficient capital deployment

SAN DIEGO, May 4, 2017 -- Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company providing debt recovery solutions for consumers across a broad range of assets, today reported consolidated financial results for the first quarter ended March 31, 2017.
“The U.S. market for charged off receivables continues to improve as growing supply and lower prices, along with improved liquidations, contribute to increasingly favorable returns,” said Kenneth A. Vecchione, President and Chief Executive Officer. “We achieved a first quarter purchase price multiple of 2.0 for new defaulted credit card portfolios, a level we haven’t seen since 2013. We believe we are well positioned to continue to benefit from these increasingly favorable trends, allowing us to take further advantage of our capital availability and collections capacity.”
“Internationally, we had a strong deployment quarter in Europe and preparation for a potential IPO for our subsidiary Cabot Credit Management announced in February remains on track. We’ve also reached a milestone overseas as the Encore Asset Reconstruction Company is now operational and has recently completed initial small purchases in the Indian debt buying market. Our deployment will be slow and measured initially as we gain comfort with this substantial market opportunity.”
Key Financial Metrics for the First Quarter of 2017:
•
Estimated Remaining Collections (ERC) grew $184 million compared to the same period of the prior year, to $5.85 billion.
•
Investment in receivable portfolios was $219 million, including $123 million in the U.S., compared to $257 million deployed overall in the same period a year ago.
•
Gross collections declined 2% to $441 million, compared to $448 million in the same period of the prior year.
•
Total revenues were $272 million, compared to $289 million in the first quarter of 2016, with the difference primarily driven by currency effects and the trailing impact of the allowance charge taken in the third quarter of last year in Europe.
•
Total operating expenses decreased 5% to $196 million, compared to $206 million in the same period of the prior year, reflecting the benefits of strategic cost management programs. Adjusted operating expenses decreased 1% to $167 million, compared to $169 million in the same period of the prior year.
•
Adjusted operating expenses per dollar collected for the portfolio purchasing and recovery business, also known as cost-to-collect, was 37.8%, compared to 37.7% in the same period of the prior year.
•
Total interest expense decreased to $49.2 million, as compared to $50.7 million in the same period of the prior year.
•
GAAP net income from continuing operations attributable to Encore was $22.3 million, or $0.85 per fully diluted share, as compared to $28.9 million, or $1.12 per fully diluted share in the same period a year ago.
•
Adjusted income from continuing operations attributable to Encore was $24.8 million, compared to $34.4 million in the first quarter of 2016.

Encore Capital Group, Inc.
Page 2 of 8



•
Adjusted income from continuing operations attributable to Encore per share (also referred to as Economic EPS) was $0.95, compared to $1.33 in the same period of the prior year.
•
Available capacity under Encore’s domestic revolving credit facility, subject to borrowing base and applicable debt covenants, was $269 million as of March 31, 2017.

Conference Call and Webcast
Encore will host a conference call and slide presentation today, May 4, 2017, at 2:00 p.m. Pacific / 5:00 p.m. Eastern time, presenting and discussing the reported results.
 
Members of the public are invited to access the live webcast via the Internet by logging on at the Investor Relations page of Encore's website at www.encorecapital.com. To access the live, listen-only telephone conference portion, please dial (855) 541-0982 or (704) 288-0606.

For those who cannot listen to the live broadcast, a telephonic replay will be available for seven days by dialing (800) 585-8367 or (404) 537-3406 and entering the conference number 10372377. A replay of the webcast will also be available shortly after the call on the Company's website.

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 from continuing operations attributable to Encore and adjusted income from continuing operations 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 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 from continuing operations attributable to Encore per share/economic EPS, 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 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 across a broad range of assets. Through its subsidiaries, Encore purchases portfolios of consumer receivables from major banks and credit unions.

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

Encore Capital Group, Inc.
Page 3 of 8



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.
 

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 4 of 8



ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)
 
March 31,
2017
 
December 31,
2016
Assets
 
 
 
Cash and cash equivalents
$
159,931

 
$
149,765

Investment in receivable portfolios, net
2,436,018

 
2,382,809

Property and equipment, net
71,805

 
72,257

Deferred court costs, net
71,334

 
65,187

Other assets
229,166

 
215,447

Goodwill
796,408

 
785,032

Total assets
$
3,764,662

 
$
3,670,497

Liabilities and equity
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
224,788

 
$
234,398

Debt
2,870,607

 
2,805,983

Other liabilities
29,794

 
29,601

Total liabilities
3,125,189

 
3,069,982

Commitments and contingencies


 


Redeemable noncontrolling interest
47,342

 
45,755

Redeemable equity component of convertible senior notes
312

 
2,995

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, 25,728 shares and 25,593 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
257

 
256

Additional paid-in capital
113,532

 
103,392

Accumulated earnings
580,957

 
560,567

Accumulated other comprehensive loss
(93,773
)
 
(104,911
)
Total Encore Capital Group, Inc. stockholders’ equity
600,973

 
559,304

Noncontrolling interest
(9,154
)
 
(7,539
)
Total equity
591,819

 
551,765

Total liabilities, redeemable equity and equity
$
3,764,662

 
$
3,670,497

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.
 
March 31,
2017
 
December 31,
2016
Assets
 
 
 
Cash and cash equivalents
$
65,195

 
$
55,823

Investment in receivable portfolios, net
1,010,495

 
972,841

Property and equipment, net
18,642

 
19,284

Deferred court costs, net
24,025

 
22,760

Other assets
78,465

 
79,767

Goodwill
594,547

 
584,868

Liabilities
 
 
 
Accounts payable and accrued liabilities
$
95,987

 
$
99,689

Debt
1,577,785

 
1,514,799

Other liabilities
1,017

 
1,921


Encore Capital Group, Inc.
Page 5 of 8



ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2017
 
2016
Revenues
 
 
 
Revenue from receivable portfolios, net
$
251,970

 
$
270,094

Other revenues
19,971

 
18,923

Total revenues
271,941

 
289,017

Operating expenses
 
 
 
Salaries and employee benefits
68,278

 
69,642

Cost of legal collections
47,957

 
54,308

Other operating expenses
26,360

 
26,343

Collection agency commissions
11,562

 
10,120

General and administrative expenses
33,318

 
35,239

Depreciation and amortization
8,625

 
9,861

Total operating expenses
196,100

 
205,513

Income from operations
75,841

 
83,504

Other (expense) income
 
 
 
Interest expense
(49,198
)
 
(50,691
)
Other income
602

 
7,124

Total other expense
(48,596
)
 
(43,567
)
Income from continuing operations before income taxes
27,245

 
39,937

Provision for income taxes
(12,067
)
 
(10,148
)
Income from continuing operations
15,178

 
29,789

Loss from discontinued operations, net of tax
(199
)
 
(3,182
)
Net income
14,979

 
26,607

Net loss (income) attributable to noncontrolling interest
7,119

 
(913
)
Net income attributable to Encore Capital Group, Inc. stockholders
$
22,098

 
$
25,694

Amounts attributable to Encore Capital Group, Inc.:
 
 
 
Income from continuing operations
$
22,297

 
$
28,876

Loss from discontinued operations, net of tax
(199
)
 
(3,182
)
Net income
$
22,098

 
$
25,694

 
 
 
 
Earnings (loss) per share attributable to Encore Capital Group, Inc.:
 
 
 
 
 
 
 
Basic earnings (loss) per share from:
 
 
 
Continuing operations
$
0.86

 
$
1.13

Discontinued operations
$
(0.01
)
 
$
(0.12
)
Net basic earnings per share
$
0.85

 
$
1.01

Diluted earnings (loss) per share from:
 
 
 
Continuing operations
$
0.85

 
$
1.12

Discontinued operations
$
—

 
$
(0.13
)
Net diluted earnings per share
$
0.85

 
$
0.99

 
 
 
 
Weighted average shares outstanding:
 
 
 
Basic
25,876

 
25,550

Diluted
26,087

 
25,868


Encore Capital Group, Inc.
Page 6 of 8



ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
 
Three Months Ended 
 March 31,
 
2017
 
2016
Operating activities:
 
 
 
Net income
$
14,979

 
$
26,607

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Loss from discontinued operations, net of income taxes
322

 
3,182

Depreciation and amortization
8,625

 
9,861

Other non-cash expense, net
11,666

 
9,533

Stock-based compensation expense
750

 
3,718

Loss (gain) on derivative instruments, net
238

 
(5,399
)
Deferred income taxes
(4,040
)
 
(21,588
)
Reversal of allowances on receivable portfolios, net
(2,132
)
 
(2,191
)
Changes in operating assets and liabilities
 
 
 
Deferred court costs and other assets
(2,413
)
 
1,233

Prepaid income tax and income taxes payable
15,260

 
18,824

Accounts payable, accrued liabilities and other liabilities
(16,095
)
 
(14,023
)
Net cash provided by operating activities from continuing operations
27,160

 
29,757

Net cash provided by operating activities from discontinued operations
—

 
2,096

Net cash provided by operating activities
27,160

 
31,853

Investing activities:
 
 
 
Proceeds from divestiture of business, net of cash divested
—

 
106,041

Purchases of receivable portfolios, net of put-backs
(222,885
)
 
(280,990
)
Collections applied to investment in receivable portfolios, net
189,665

 
180,796

Purchases of property and equipment
(6,081
)
 
(2,569
)
Payments to acquire interest in affiliates
(8,805
)
 
—

(Payments for) proceeds from derivative instruments, net
(1,942
)
 
1,508

Other, net
1,057

 
(675
)
Net cash (used in) provided by investing activities from continuing operations
(48,991
)
 
4,111

Net cash provided by investing activities from discontinued operations
—

 
14,685

Net cash (used in) provided by investing activities
(48,991
)
 
18,796

Financing activities:
 
 
 
Payment of loan costs
(2,742
)
 
(1,395
)
Proceeds from credit facilities
199,962

 
188,516

Repayment of credit facilities
(258,073
)
 
(236,372
)
Repayment of senior secured notes
(3,087
)
 
(3,750
)
Proceeds from issuance of convertible senior notes
150,000

 
—

Repayment of convertible senior notes
(60,406
)
 
—

Proceeds from convertible hedge instruments
5,580

 
—

Taxes paid related to net share settlement of equity awards
(2,065
)
 
(3,354
)
Other, net
(876
)
 
(5,132
)
Net cash provided by (used in) financing activities
28,293

 
(61,487
)
Net increase (decrease) in cash and cash equivalents
6,462

 
(10,838
)
Effect of exchange rate changes on cash and cash equivalents
3,704

 
1,858

Cash and cash equivalents, beginning of period
149,765

 
153,593

Cash and cash equivalents, end of period
159,931

 
144,613


Encore Capital Group, Inc.
Page 7 of 8



ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted Income From Continuing Operations Attributable to Encore to GAAP Net Income From Continuing Operations Attributable to Encore 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 March 31,
 
2017
 
2016
 
$
 
Per Diluted
Share—
Accounting and Economic
 
$
 
Per Diluted
Share—
Accounting and Economic
GAAP net income from continuing operations attributable to Encore, as reported
$
22,297

 
$
0.85

 
$
28,876

 
$
1.12

Adjustments:
 
 
 
 
 
 
 
Convertible notes non-cash interest and issuance cost amortization
3,014

 
0.12

 
2,909

 
0.11

Acquisition, integration and restructuring related expenses(1)
855

 
0.04

 
3,059

 
0.12

Settlement fees and related administrative expenses(2)
—

 
—

 
2,988

 
0.12

Amortization of certain acquired intangible assets(3)
560

 
0.02

 
1,074

 
0.04

Income tax effect of the adjustments(4)
(1,489
)
 
(0.06
)
 
(3,283
)
 
(0.13
)
Adjustments attributable to noncontrolling interest(5)
(482
)
 
(0.02
)
 
(1,218
)
 
(0.05
)
Adjusted income from continuing operations attributable to Encore
$
24,755

 
$
0.95

 
$
34,405

 
$
1.33

________________________
(1)
Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(2)
Amount represents litigation and government settlement fees and related administrative expenses. For the three months ended March 31, 2016, amount consists of settlement and administrative fees related to certain TCPA settlements. We believe these fees and expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(3)
As we continue to acquire debt solution service providers around the world, the acquired intangible assets, such as trade names and customer relationships, have grown substantially. These intangible assets are valued at the time of the acquisition and amortized over their estimated lives. We believe that amortization of acquisition-related intangible assets, especially the amortization of an acquired company’s trade names and customer relationships, is the result of pre-acquisition activities. In addition, the amortization of these acquired intangibles is a non-cash static expense that is not affected by operations during any reporting period. As a result, the amortization of certain acquired intangible assets is excluded from our adjusted income from continuing operations attributable to Encore and adjusted income from continuing operations per share.
(4)
Amount represents the total income tax effect of the adjustments, which is calculated based on the applicable marginal tax rate of the jurisdiction in which the portion of the adjustment occurred.
(5)
Certain of the above pre-tax adjustments include expenses recognized by our partially-owned subsidiaries. This adjustment represents the portion of the non-GAAP adjustments that are attributable to noncontrolling interest.


Encore Capital Group, Inc.
Page 8 of 8



 
Three Months Ended 
 March 31,
2017
 
2016
GAAP total operating expenses, as reported
$
196,100

 
$
205,513

Adjustments:
 
 
 
Stock-based compensation expense
(750
)
 
(3,718
)
Operating expenses related to non-portfolio purchasing and recovery business(1)
(27,946
)
 
(26,885
)
Acquisition, integration and restructuring related expenses(2)
(855
)
 
(3,059
)
Settlement fees and related administrative expenses(3)
—

 
(2,988
)
Adjusted operating expenses related to portfolio purchasing and recovery business
$
166,549

 
$
168,863

________________________
(1)
Operating expenses related to non-portfolio purchasing and recovery business include operating expenses from other operating segments that primarily engage in fee-based business, as well as corporate overhead not related to our portfolio purchasing and recovery business.
(2)
Amount represents acquisition, integration and restructuring related operating expenses. We adjust for this amount because we believe these expenses
are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(3)
Amount represents litigation and government settlement fees and related administrative expenses. For the three months ended March 31, 2016, amount consists of settlement and administrative fees related to certain TCPA settlements. We believe these fees and expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.