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 8, 2019
______________________
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.)

350 Camino De La Reina, Suite 100, San Diego, California
(Address of Principal Executive Offices)
92108
(Zip Code)
(877) 445-4581
(Registrant’s Telephone Number, Including Area Code)
3111 Camino Del Rio North, Suite 103, San Diego, California
(Former Address)
______________________
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.    ¨
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 Par Value Per Share
 
ECPG
 
The NASDAQ Stock Market LLC






Item 2.02.    Results of Operations and Financial Condition.

On May 8, 2019, Encore Capital Group, Inc. (“Encore”) issued a press release announcing its financial results for the quarter ended March 31, 2019. 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 8, 2019





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 8, 2019
/s/ Jonathan C. Clark
 
Jonathan C. Clark
 
Executive Vice President, Chief Financial Officer and Treasurer






EXHIBIT INDEX
Exhibit Number
Description
99.1





Exhibit
https://cdn.kscope.io/47b78a18d6a2242c6498eb5fe255b094-ecpglogo.jpg
 
 
Exhibit 99.1



Encore Capital Group Announces First Quarter 2019 Financial Results

•
Encore sets new records for earnings, global cash collections and estimated remaining collections
•
GAAP EPS of $1.57 per share
•
Non-GAAP Economic EPS of $1.46 per share

SAN DIEGO, May 8, 2019 -- Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company, today reported consolidated financial results for the first quarter ended March 31, 2019.
“In the first quarter, Encore’s strong operational and financial performance drove record results for our business,” said Ashish Masih, President and Chief Executive Officer. “Collections growth continues to be driven by our focus on operational innovation and increased productivity, resulting in record global cash collections and a further shift toward our call center and digital collections channel in the U.S. In addition, global portfolio purchases totaled $262 million in the quarter. We allocated approximately 98% of the capital we deployed in the first quarter to the U.S. and the U.K. debt purchasing markets, where we have scale advantages, leadership positions and the opportunity to earn the highest risk-adjusted returns relative to other markets. Our solid performance drove record earnings for the quarter and a new all-time high for global estimated remaining collections at $7.3 billion.”
“In Europe, Cabot continues to grow collections, revenues and earnings as the U.K.’s market leader in debt purchasing. Cabot is also a U.K. market leader in capital-light agency debt collections and business process outsourcing for the credit management services industry. Credit issuers in the U.K. and in Europe are looking to increasingly outsource their credit management responsibilities. As a result, Cabot is particularly well-positioned to benefit from its broad and deep credit management product offering.”
“Looking forward, consumer indebtedness in both the U.S. and the U.K. has recently reached new record levels, a strong indication of future increases in charge-offs and supply growth in our two most important markets,” said Masih.

Key Financial Metrics for the First Quarter of 2019:
•
Estimated remaining collections (ERC) increased $199 million compared to the end of the same period of the prior year, to a record $7.3 billion.
•
Portfolio purchases were $262 million, including $174 million in the U.S. and $84 million in Europe, compared to $277 million deployed overall in the same period a year ago.
•
Gross collections increased 5% to a record $514 million, compared to $489 million in the same period of the prior year.
•
Total revenues, adjusted by net allowances, increased 6% to $347 million, compared to $327 million in the first quarter of 2018.
•
Total operating expenses were $236 million, compared to $238 million in the same period of the prior year.
•
Adjusted operating expenses, which represent the expenses related to our portfolio purchasing and recovery business, were $187 million, compared to $188 million in the same period of the prior year.
•
Total interest expense decreased to $55.0 million, compared to $57.5 million in the same period of the prior year, principally as a result of our purchase of all previously outstanding Cabot-related Preferred Equity Certificates (PECs), partially offset by expenses relating to higher interest rates and higher balances on revolving credit facilities.

Encore Capital Group, Inc.
Page 2



•
GAAP net income attributable to Encore was $49.3 million, or $1.57 per fully diluted share, compared to $21.8 million, or $0.83 per fully diluted share in the first quarter of 2018.
•
Adjusted net income attributable to Encore was $45.9 million, or $1.46 per fully diluted share, compared to $25.8 million, or $0.98 per fully diluted share in the first quarter of 2018.
•
As of March 31, 2019, after taking into account borrowing base and applicable debt covenants, available capacity under Encore’s U.S. revolving credit facility, was $138.8 million and availability under Cabot’s revolving credit facility was £139.8 million (approximately $182.2 million).

Conference Call and Webcast
Encore will host a conference call and slide presentation today, May 8, 2019, at 2:00 p.m. Pacific / 5:00 p.m. Eastern time, to present and discuss first quarter results.
 
Members of the public are invited to access the live webcast via the Internet by logging in on 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 3289575. 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 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 operating expenses in order to facilitate a comparison of approximate 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, 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.







Encore Capital Group, Inc.
Page 3



About Encore Capital Group, Inc.

Encore Capital Group is an international specialty finance company that provides debt recovery solutions and other related services across a broad range of financial assets. Through its subsidiaries around the globe, Encore purchases or services portfolios of receivables from major banks, credit unions and utility providers.
Headquartered in San Diego, Encore 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 www.encorecapital.com. More information about the Company’s Midland Credit Management subsidiary can be found at www.midlandcreditonline.com. More information about the Company's Cabot Credit Management subsidiary can be found at www.cabotcm.com. Information found on the Company’s, MCM’s, or Cabot’s websites 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



ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)
 
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Cash and cash equivalents
$
167,096

 
$
157,418

Investment in receivable portfolios, net
3,211,587

 
3,137,893

Deferred court costs, net
96,207

 
95,918

Property and equipment, net
117,371

 
115,518

Other assets
338,462

 
257,002

Goodwill
882,884

 
868,126

Total assets
$
4,813,607

 
$
4,631,875

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
195,686

 
$
287,945

Debt, net
3,592,906

 
3,490,633

Other liabilities
150,458

 
33,609

Total liabilities
3,939,050

 
3,812,187

Commitments and contingencies
 
 
 
Equity:
 
 
 
Convertible preferred stock, $0.01 par value, 5,000 shares authorized, no shares issued and outstanding
—

 
—

Common stock, $0.01 par value, 50,000 shares authorized, 30,967 shares and 30,884 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
310

 
309

Additional paid-in capital
208,374

 
208,498

Accumulated earnings
769,443

 
720,189

Accumulated other comprehensive loss
(105,864
)
 
(110,987
)
Total Encore Capital Group, Inc. stockholders’ equity
872,263

 
818,009

Noncontrolling interest
2,294

 
1,679

Total equity
874,557

 
819,688

Total liabilities and equity
$
4,813,607

 
$
4,631,875

The following table presents certain assets and liabilities of consolidated variable interest entities (“VIEs”) included in the consolidated statements of financial condition above. Most assets in the table below include those assets that can only be used to settle obligations of consolidated VIEs. The liabilities exclude amounts where creditors or beneficial interest holders have recourse to the general credit of the Company.
 
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Cash and cash equivalents
$
53

 
$
448

Investment in receivable portfolios, net
521,971

 
501,489

Other assets
10,367

 
9,563

Liabilities
 
 
 
Accounts payable and accrued liabilities
$
4,661

 
$
4,556

Debt, net
456,204

 
445,837

Other liabilities
46

 
46


Encore Capital Group, Inc.
Page 5



ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)

 
Three Months Ended
March 31,
 
2019
 
2018
Revenues
 
 
 
Revenue from receivable portfolios
$
311,158

 
$
281,009

Other revenues
34,552

 
35,968

Total revenues
345,710

 
316,977

Allowance reversals on receivable portfolios, net
1,367

 
9,811

Total revenues, adjusted by net allowances
347,077

 
326,788

Operating expenses
 
 
 
Salaries and employee benefits
91,834

 
89,259

Cost of legal collections
49,027

 
53,855

Other operating expenses
29,614

 
33,748

Collection agency commissions
16,002

 
11,754

General and administrative expenses
39,547

 
39,284

Depreciation and amortization
9,995

 
10,436

Total operating expenses
236,019

 
238,336

Income from operations
111,058

 
88,452

Other (expense) income
 
 
 
Interest expense
(54,967
)
 
(57,462
)
Other (expense) income
(2,976
)
 
2,193

Total other expense
(57,943
)
 
(55,269
)
Income from operations before income taxes
53,115

 
33,183

Provision for income taxes
(3,673
)
 
(9,470
)
Net income
49,442

 
23,713

Net income attributable to noncontrolling interest
(188
)
 
(1,886
)
Net income attributable to Encore Capital Group, Inc. stockholders
$
49,254

 
$
21,827

 
 
 
 
Earnings per share attributable to Encore Capital Group, Inc.:
 
 
 
Basic
$
1.58

 
$
0.84

Diluted
$
1.57

 
$
0.83

 
 
 
 
Weighted average shares outstanding:
 
 
 
Basic
31,201

 
26,056

Diluted
31,359

 
26,416



Encore Capital Group, Inc.
Page 6



ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
 
Three Months Ended
March 31,
 
2019
 
2018
Operating activities:
 
 
 
Net income
$
49,442

 
$
23,713

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
9,995

 
10,436

Other non-cash interest expense, net
6,629

 
11,597

Stock-based compensation expense
1,826

 
2,276

Deferred income taxes
19,682

 
5,071

Allowance reversals on receivable portfolios, net
(1,367
)
 
(9,811
)
Other, net
4,081

 
1,342

Changes in operating assets and liabilities
 
 
 
Deferred court costs and other assets
18,725

 
(5,811
)
Prepaid income tax and income taxes payable
(30,247
)
 
(2,245
)
Accounts payable, accrued liabilities and other liabilities
(67,775
)
 
(35,539
)
Net cash provided by operating activities
10,991

 
1,029

Investing activities:
 
 
 
Purchases of receivable portfolios, net of put-backs
(258,635
)
 
(280,909
)
Collections applied to investment in receivable portfolios, net
201,328

 
206,402

Purchases of property and equipment
(10,227
)
 
(11,220
)
Other, net
(1,980
)
 
1,239

Net cash used in investing activities
(69,514
)
 
(84,488
)
Financing activities:
 
 
 
Proceeds from credit facilities
196,263

 
177,449

Repayment of credit facilities
(119,854
)
 
(87,356
)
Taxes paid related to net share settlement of equity awards
(1,950
)
 
(2,571
)
Other, net
(2,912
)
 
(2,884
)
Net cash provided by financing activities
71,547

 
84,638

Net increase in cash and cash equivalents
13,024

 
1,179

Effect of exchange rate changes on cash and cash equivalents
(3,346
)
 
3,820

Cash and cash equivalents, beginning of period
157,418

 
212,139

Cash and cash equivalents, end of period
$
167,096

 
$
217,138


Encore Capital Group, Inc.
Page 7



ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted Income Attributable to Encore to GAAP Net Income 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,
 
2019
 
2018
 
$
 
Per Diluted
Share—
Accounting and Economic
 
$
 
Per Diluted
Share—
Accounting and Economic
GAAP net income attributable to Encore, as reported
$
49,254

 
$
1.57

 
$
21,827

 
$
0.83

Adjustments:
 
 
 
 
 
 
 
Convertible notes and exchangeable notes non-cash interest and issuance cost amortization
4,002

 
0.13

 
3,035

 
0.12

Amortization of certain acquired intangible assets(1)
1,877

 
0.06

 
2,068

 
0.08

Acquisition, integration and restructuring related expenses(2)
1,208

 
0.04

 
572

 
0.02

Net gain on fair value adjustments to contingent consideration(3)
—

 
—

 
(2,274
)
 
(0.09
)
Expenses related to withdrawn Cabot IPO(4)
—

 
—

 
2,984

 
0.11

Adjustments attributable to noncontrolling interest(5)
—

 
—

 
(1,558
)
 
(0.06
)
Income tax effect of above non-GAAP adjustments and certain discrete tax items(6)
(1,383
)
 
(0.05
)
 
(810
)
 
(0.03
)
Change in tax accounting method(7)
(9,070
)
 
(0.29
)
 
—

 
—

Adjusted net income attributable to Encore
$
45,888

 
$
1.46

 
$
25,844

 
$
0.98

________________________
(1)
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.
(2)
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.
(3)
Amount represents the net gain recognized as a result of fair value adjustments to contingent considerations that were established for our acquisitions of debt solution service providers in Europe. We have adjusted for this amount because we do not believe this is indicative of ongoing operations.
(4)
Amount represents expenses related to the proposed and later withdrawn initial public offering by CCM. 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.
(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.
(6)
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. Additionally, we adjust for certain discrete tax items that are not indicative of our ongoing operations.
(7)
Amount represents the benefit from the tax accounting method change related to revenue reporting. We adjust for certain discrete tax items that are not indicative of our ongoing operations.




Encore Capital Group, Inc.
Page 8



 
Three Months Ended
March 31,
2019
 
2018
GAAP total operating expenses, as reported
$
236,019

 
$
238,336

Adjustments:
 
 
 
Operating expenses related to non-portfolio purchasing and recovery business(1)
(46,082
)
 
(46,614
)
Acquisition, integration and restructuring related expenses(2)
(1,208
)
 
(572
)
Stock-based compensation expense
(1,826
)
 
(2,276
)
Gain on fair value adjustments to contingent consideration(3)
—

 
2,274

Expenses related to withdrawn Cabot IPO(4)
—

 
(2,984
)
Adjusted operating expenses related to portfolio purchasing and recovery business
$
186,903

 
$
188,164

________________________
(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 (excluding amounts already included in stock-based compensation expense). 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 the gain recognized as a result of fair value adjustments to contingent considerations that were established for our acquisitions of debt solution service providers in Europe. We have adjusted for this amount because we do not believe this is indicative of ongoing operations.
(4)
Amount represents expenses related to the proposed and later withdrawn initial public offering by CCM. 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.