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) |
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)) |
Exhibit Number | Description |
99.1 | Press release dated August 3, 2017 |
ENCORE CAPITAL GROUP, INC. | |
Date: August 3, 2017 | /s/ Jonathan C. Clark |
Jonathan C. Clark | |
Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit Number | Description |
99.1 | Press release dated August 3, 2017 |
Exhibit 99.1 |
• | Improved global collections and favorable U.S. market conditions drive higher returns |
• | Estimated Remaining Collections of $6.3 billion establishes new all-time high |
• | Estimated Remaining Collections (ERC) grew $719 million compared to the same period of the prior year, to $6.26 billion. |
• | Investment in receivable portfolios was $246 million, including $132 million in the U.S. and $92 million in Europe, compared to $233 million deployed overall in the same period a year ago. |
• | Gross collections grew 3% to $446 million, compared to $434 million in the same period of the prior year. |
• | Total revenues were $291 million, compared to $289 million in the second quarter of 2016. |
• | Total operating expenses increased 6% to $210 million, compared to $198 million in the same period of the prior year, reflecting higher legal collections spending in the United States. Adjusted operating expenses increased 12% to $180 million, compared to $160 million in the same period of the prior year. |
• | Total interest expense remained steady at $50.5 million, as compared to $50.6 million in the same period of the prior year. |
• | GAAP net income attributable to Encore was $20.3 million, or $0.77 per fully diluted share, as compared to $29.6 million, or $1.14 per fully diluted share in the same period a year ago. |
• | Adjusted income attributable to Encore was $22.9 million, compared to $33.4 million in the second quarter of 2016. |
• | Adjusted income attributable to Encore per share (also referred to as Economic EPS) was $0.88, compared to $1.29 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 $263 million as of June 30, 2017. |
June 30, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 146,647 | $ | 149,765 | |||
Investment in receivable portfolios, net | 2,555,925 | 2,382,809 | |||||
Property and equipment, net | 71,135 | 72,257 | |||||
Deferred court costs, net | 74,316 | 65,187 | |||||
Other assets | 239,218 | 215,447 | |||||
Goodwill | 831,556 | 785,032 | |||||
Total assets | $ | 3,918,797 | $ | 3,670,497 | |||
Liabilities and equity | |||||||
Liabilities: | |||||||
Accounts payable and accrued liabilities | $ | 256,982 | $ | 234,398 | |||
Debt | 2,963,929 | 2,805,983 | |||||
Other liabilities | 29,776 | 29,601 | |||||
Total liabilities | 3,250,687 | 3,069,982 | |||||
Commitments and contingencies | |||||||
Redeemable noncontrolling interest | 126,215 | 45,755 | |||||
Redeemable equity component of convertible senior notes | 192 | 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, 25,741 shares and 25,593 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively | 257 | 256 | |||||
Additional paid-in capital | 43,076 | 103,392 | |||||
Accumulated earnings | 593,290 | 560,567 | |||||
Accumulated other comprehensive loss | (83,110 | ) | (104,911 | ) | |||
Total Encore Capital Group, Inc. stockholders’ equity | 553,513 | 559,304 | |||||
Noncontrolling interest | (11,810 | ) | (7,539 | ) | |||
Total equity | 541,703 | 551,765 | |||||
Total liabilities, redeemable equity and equity | $ | 3,918,797 | $ | 3,670,497 |
June 30, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 43,077 | $ | 55,823 | |||
Investment in receivable portfolios, net | 1,103,135 | 972,841 | |||||
Property and equipment, net | 19,843 | 19,284 | |||||
Deferred court costs, net | 25,049 | 22,760 | |||||
Other assets | 91,179 | 79,767 | |||||
Goodwill | 628,849 | 584,868 | |||||
Liabilities | |||||||
Accounts payable and accrued liabilities | $ | 117,645 | $ | 99,689 | |||
Debt | 1,666,962 | 1,514,799 | |||||
Other liabilities | 618 | 1,921 |
Three Months Ended June 30, | |||||||
2017 | 2016 | ||||||
Revenues | |||||||
Revenue from receivable portfolios, net | $ | 272,236 | $ | 267,452 | |||
Other revenues | 18,681 | 21,990 | |||||
Total revenues | 290,917 | 289,442 | |||||
Operating expenses | |||||||
Salaries and employee benefits | 75,786 | 75,499 | |||||
Cost of legal collections | 53,409 | 46,807 | |||||
Other operating expenses | 24,030 | 24,946 | |||||
Collection agency commissions | 11,494 | 9,274 | |||||
General and administrative expenses | 36,932 | 32,934 | |||||
Depreciation and amortization | 8,672 | 8,235 | |||||
Total operating expenses | 210,323 | 197,695 | |||||
Income from operations | 80,594 | 91,747 | |||||
Other (expense) income | |||||||
Interest expense | (50,516 | ) | (50,597 | ) | |||
Other income | 2,529 | 3,134 | |||||
Total other expense | (47,987 | ) | (47,463 | ) | |||
Income before income taxes | 32,607 | 44,284 | |||||
Provision for income taxes | (13,531 | ) | (13,451 | ) | |||
Net income | 19,076 | 30,833 | |||||
Net loss (income) attributable to noncontrolling interest | 1,179 | (1,245 | ) | ||||
Net income attributable to Encore Capital Group, Inc. stockholders | $ | 20,255 | $ | 29,588 | |||
Earnings (loss) per share attributable to Encore Capital Group, Inc.: | |||||||
Basic | $ | 0.78 | $ | 1.15 | |||
Diluted | $ | 0.77 | $ | 1.14 | |||
Weighted average shares outstanding: | |||||||
Basic | 25,983 | 25,742 | |||||
Diluted | 26,391 | 25,874 |
Six Months Ended June 30, | |||||||
2017 | 2016 | ||||||
Operating activities: | |||||||
Net income | $ | 34,055 | $ | 57,440 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Loss from discontinued operations, net of income taxes | 199 | 3,182 | |||||
Depreciation and amortization | 17,297 | 18,096 | |||||
Other non-cash expense, net | 21,309 | 19,242 | |||||
Stock-based compensation expense | 3,510 | 8,869 | |||||
Gain on derivative instruments, net | (2,623 | ) | (7,531 | ) | |||
Deferred income taxes | (3,164 | ) | (25,002 | ) | |||
Reversal of allowances on receivable portfolios, net | (10,961 | ) | (4,670 | ) | |||
Changes in operating assets and liabilities | |||||||
Deferred court costs and other assets | (5,951 | ) | (666 | ) | |||
Prepaid income tax and income taxes payable | 20,389 | 5,260 | |||||
Accounts payable, accrued liabilities and other liabilities | (2,770 | ) | (27,236 | ) | |||
Net cash provided by operating activities from continuing operations | 71,290 | 46,984 | |||||
Net cash provided by operating activities from discontinued operations | — | 2,096 | |||||
Net cash provided by operating activities | 71,290 | 49,080 | |||||
Investing activities: | |||||||
Cash paid for acquisitions, net of cash acquired | (5,623 | ) | (675 | ) | |||
Proceeds from divestiture of business, net of cash divested | — | 106,041 | |||||
Purchases of receivable portfolios, net of put-backs | (464,507 | ) | (517,665 | ) | |||
Collections applied to investment in receivable portfolios, net | 371,285 | 351,219 | |||||
Purchases of property and equipment | (11,984 | ) | (10,094 | ) | |||
Payments to acquire interest in affiliates | (8,805 | ) | — | ||||
Other, net | 4,559 | 3,502 | |||||
Net cash used in investing activities from continuing operations | (115,075 | ) | (67,672 | ) | |||
Net cash provided by investing activities from discontinued operations | — | 14,685 | |||||
Net cash used in investing activities | (115,075 | ) | (52,987 | ) | |||
Financing activities: | |||||||
Payment of loan costs | (3,415 | ) | (2,934 | ) | |||
Proceeds from credit facilities | 331,020 | 288,750 | |||||
Repayment of credit facilities | (373,345 | ) | (307,946 | ) | |||
Repayment of senior secured notes | (6,174 | ) | (11,256 | ) | |||
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 | (2,457 | ) | (4,068 | ) | |||
Proceeds from other debt | — | 34,946 | |||||
Other, net | (4,954 | ) | (8,714 | ) | |||
Net cash provided by (used in) financing activities | 35,849 | (11,222 | ) | ||||
Net decrease in cash and cash equivalents | (7,936 | ) | (15,129 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | 4,818 | 545 | |||||
Cash and cash equivalents, beginning of period | 149,765 | 153,593 | |||||
Cash and cash equivalents, end of period | 146,647 | 139,009 |
Three Months Ended June 30, | |||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||
$ | Per Diluted Share— Accounting | Per Diluted Share— Economic | $ | Per Diluted Share— Accounting | Per Diluted Share— Economic | ||||||||||||||||||
GAAP net income attributable to Encore, as reported | $ | 20,255 | $ | 0.77 | $ | 0.77 | $ | 29,588 | $ | 1.14 | $ | 1.14 | |||||||||||
Adjustments: | |||||||||||||||||||||||
Convertible notes non-cash interest and issuance cost amortization | 3,078 | 0.12 | 0.12 | 2,921 | 0.11 | 0.11 | |||||||||||||||||
Acquisition, integration and restructuring related expenses(1) | 3,520 | 0.13 | 0.14 | 3,271 | 0.13 | 0.13 | |||||||||||||||||
Gain on reversal of contingent consideration(2) | (2,773 | ) | (0.10 | ) | (0.10 | ) | — | — | — | ||||||||||||||
Settlement fees and related administrative expenses(3) | — | — | — | 698 | 0.03 | 0.03 | |||||||||||||||||
Amortization of certain acquired intangible assets(4) | 588 | 0.02 | 0.02 | 575 | 0.02 | 0.02 | |||||||||||||||||
Income tax effect of the adjustments(5) | (943 | ) | (0.04 | ) | (0.04 | ) | (2,338 | ) | (0.09 | ) | (0.09 | ) | |||||||||||
Adjustments attributable to noncontrolling interest(6) | (812 | ) | (0.03 | ) | (0.03 | ) | (1,273 | ) | (0.05 | ) | (0.05 | ) | |||||||||||
Adjusted income attributable to Encore | $ | 22,913 | $ | 0.87 | $ | 0.88 | $ | 33,442 | $ | 1.29 | $ | 1.29 |
(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 a gain recognized as a result of reversing a liability for contingent consideration that was established when we acquired a debt solution service provider in Europe. We have adjusted for this amount because we do not believe this is indicative of ongoing operations. |
(3) | Amount represents litigation and government settlement fees and related administrative expenses. For the three months ended June 30, 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. |
(4) | 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. |
(5) | Amount represents the total income tax effect of the adjustments, which is generally calculated based on the applicable marginal tax rate of the jurisdiction in which the portion of the adjustment occurred. |
(6) | 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. |
Three Months Ended June 30, | |||||||
2017 | 2016 | ||||||
GAAP total operating expenses, as reported | $ | 210,323 | $ | 197,695 | |||
Adjustments: | |||||||
Stock-based compensation expense | (2,760 | ) | (5,151 | ) | |||
Operating expenses related to non-portfolio purchasing and recovery business(1) | (26,984 | ) | (28,253 | ) | |||
Acquisition, integration and restructuring related expenses(2) | (3,520 | ) | (3,271 | ) | |||
Gain on reversal of contingent consideration(3) | 2,773 | — | |||||
Settlement fees and related administrative expenses(4) | — | (698 | ) | ||||
Adjusted operating expenses related to portfolio purchasing and recovery business | $ | 179,832 | $ | 160,322 |
(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 a gain recognized as a result of reversing a liability for contingent consideration that was established when we acquired a debt solution service provider in Europe. We have adjusted for this amount because we do not believe this is indicative of ongoing operations. |
(4) | Amount represents litigation and government settlement fees and related administrative expenses. For the three months ended June 30, 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. |