Delaware | 000-26489 | 48-1090909 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
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)) |
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 |
Exhibit Number | Description |
99.1 | Press release dated August 7, 2019 |
ENCORE CAPITAL GROUP, INC. | |
Date: August 7, 2019 | /s/ Jonathan C. Clark |
Jonathan C. Clark | |
Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit Number | Description |
99.1 |
• | Encore sets new records for global cash collections and estimated remaining collections |
• | MCM sets new records for cash collections and revenues in the U.S. |
• | GAAP EPS of $1.17 per share and non-GAAP Economic EPS of $1.28 per share, which both include a $0.23 per share expense related to the June refinancing of Cabot’s debt that was maturing in 2021 |
• | Estimated remaining collections (ERC) increased $134 million compared to the end of the same period of the prior year, to a record $7.4 billion. |
• | Portfolio purchases were $243 million, including $180 million in the U.S. and $57 million in Europe. |
• | Gross collections increased 4% to a record $515 million, compared to $496 million in the same period of the prior year. |
• | Total revenues, adjusted by net allowances, decreased 1% to $347 million, compared to $350 million in the second quarter of 2018, principally as a result of $14.5 million of European allowance reversals recorded in the same period a year ago. |
• | Total operating expenses decreased 5% to $233 million, compared to $246 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 $188 million, compared to $186 million in the same period of the prior year. |
• | Total interest expense increased to $63.9 million, compared to $60.5 million in the same period of the prior year, principally as a result of approximately $9 million of expenses related to the June refinancing of Cabot’s debt. |
• | GAAP net income attributable to Encore was $36.7 million, or $1.17 per fully diluted share, which includes a $0.23 per share expense associated with the June refinancing of Cabot’s debt. This compares to $26.3 million, or $1.00 per fully diluted share in the second quarter of 2018. |
• | Adjusted net income attributable to Encore was $40.3 million, or $1.28 per fully diluted share, which includes a $0.23 per share expense associated with the June refinancing of Cabot’s debt. This compares to $35.1 million, or $1.33 per fully diluted share in the second quarter of 2018. |
• | As of June 30, 2019, after taking into account borrowing base and applicable debt covenants, available capacity under Encore’s U.S. revolving credit facility was $161 million and availability under Cabot’s revolving credit facility was £156 million (approximately $197 million). |
June 30, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 168,565 | $ | 157,418 | |||
Investment in receivable portfolios, net | 3,224,568 | 3,137,893 | |||||
Deferred court costs, net | 92,595 | 95,918 | |||||
Property and equipment, net | 118,001 | 115,518 | |||||
Other assets | 341,769 | 257,002 | |||||
Goodwill | 865,527 | 868,126 | |||||
Total assets | $ | 4,811,025 | $ | 4,631,875 | |||
Liabilities and Equity | |||||||
Liabilities: | |||||||
Accounts payable and accrued liabilities | $ | 218,837 | $ | 287,945 | |||
Debt, net | 3,529,717 | 3,490,633 | |||||
Other liabilities | 159,514 | 33,609 | |||||
Total liabilities | 3,908,068 | 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, 75,000 and 50,000 shares authorized, 30,980 and 30,884 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively | 310 | 309 | |||||
Additional paid-in capital | 211,508 | 208,498 | |||||
Accumulated earnings | 806,104 | 720,189 | |||||
Accumulated other comprehensive loss | (117,427 | ) | (110,987 | ) | |||
Total Encore Capital Group, Inc. stockholders’ equity | 900,495 | 818,009 | |||||
Noncontrolling interest | 2,462 | 1,679 | |||||
Total equity | 902,957 | 819,688 | |||||
Total liabilities and equity | $ | 4,811,025 | $ | 4,631,875 |
June 30, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 164 | $ | 448 | |||
Investment in receivable portfolios, net | 503,586 | 501,489 | |||||
Other assets | 5,865 | 9,563 | |||||
Liabilities | |||||||
Accounts payable and accrued liabilities | $ | — | $ | 4,556 | |||
Debt, net | 444,455 | 445,837 | |||||
Other liabilities | 46 | 46 |
Three Months Ended June 30, | |||||||
2019 | 2018 | ||||||
Revenues | |||||||
Revenue from receivable portfolios | $ | 312,495 | $ | 292,662 | |||
Other revenues | 32,316 | 39,453 | |||||
Total revenues | 344,811 | 332,115 | |||||
Allowance reversals on receivable portfolios, net | 2,063 | 17,632 | |||||
Total revenues, adjusted by net allowances | 346,874 | 349,747 | |||||
Operating expenses | |||||||
Salaries and employee benefits | 96,227 | 90,960 | |||||
Cost of legal collections | 51,448 | 51,255 | |||||
Other operating expenses | 29,546 | 39,039 | |||||
Collection agency commissions | 13,560 | 12,151 | |||||
General and administrative expenses | 32,620 | 41,986 | |||||
Depreciation and amortization | 9,741 | 10,923 | |||||
Total operating expenses | 233,142 | 246,314 | |||||
Income from operations | 113,732 | 103,433 | |||||
Other expense | |||||||
Interest expense | (63,913 | ) | (60,536 | ) | |||
Other expense | (1,244 | ) | (4,615 | ) | |||
Total other expense | (65,157 | ) | (65,151 | ) | |||
Income from operations before income taxes | 48,575 | 38,282 | |||||
Provision for income taxes | (11,753 | ) | (11,308 | ) | |||
Net income | 36,822 | 26,974 | |||||
Net income attributable to noncontrolling interest | (161 | ) | (676 | ) | |||
Net income attributable to Encore Capital Group, Inc. stockholders | $ | 36,661 | $ | 26,298 | |||
Earnings per share attributable to Encore Capital Group, Inc.: | |||||||
Basic | $ | 1.17 | $ | 1.01 | |||
Diluted | $ | 1.17 | $ | 1.00 | |||
Weighted average shares outstanding: | |||||||
Basic | 31,225 | 26,150 | |||||
Diluted | 31,426 | 26,409 |
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
Operating activities: | |||||||
Net income | $ | 86,264 | $ | 50,687 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 19,736 | 21,359 | |||||
Other non-cash interest expense, net | 16,233 | 22,253 | |||||
Interest expense related to financing | 3,496 | — | |||||
Stock-based compensation expense | 5,407 | 5,445 | |||||
(Gain) loss on derivative instruments, net | (173 | ) | 8,656 | ||||
Deferred income taxes | 23,977 | 8,256 | |||||
Allowance reversals on receivable portfolios, net | (3,430 | ) | (27,443 | ) | |||
Other, net | 14,000 | (7,456 | ) | ||||
Changes in operating assets and liabilities | |||||||
Deferred court costs and other assets | 23,739 | (13,366 | ) | ||||
Prepaid income tax and income taxes payable | (36,569 | ) | 22,550 | ||||
Accounts payable, accrued liabilities and other liabilities | (43,860 | ) | 6,686 | ||||
Net cash provided by operating activities | 108,820 | 97,627 | |||||
Investing activities: | |||||||
Purchases of receivable portfolios, net of put-backs | (499,937 | ) | (633,040 | ) | |||
Collections applied to investment in receivable portfolios, net | 405,081 | 415,174 | |||||
Purchases of property and equipment | (17,480 | ) | (24,655 | ) | |||
Other, net | (3,352 | ) | 1,634 | ||||
Net cash used in investing activities | (115,688 | ) | (240,887 | ) | |||
Financing activities: | |||||||
Payment of loan and debt refinancing costs | (7,988 | ) | (1,387 | ) | |||
Proceeds from credit facilities | 322,857 | 425,650 | |||||
Repayment of credit facilities | (276,188 | ) | (292,430 | ) | |||
Proceeds from senior secured notes | 460,512 | — | |||||
Repayment of senior secured notes | (460,455 | ) | (1,029 | ) | |||
Taxes paid related to net share settlement of equity awards | (1,428 | ) | (2,651 | ) | |||
Proceeds from other debt | 8,779 | 6,144 | |||||
Repayment of other debt | (17,410 | ) | (12,028 | ) | |||
Other, net | (1,101 | ) | (1,234 | ) | |||
Net cash provided by financing activities | 27,578 | 121,035 | |||||
Net increase (decrease) in cash and cash equivalents | 20,710 | (22,225 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (9,563 | ) | (8,257 | ) | |||
Cash and cash equivalents, beginning of period | 157,418 | 212,139 | |||||
Cash and cash equivalents, end of period | $ | 168,565 | $ | 181,657 |
Three Months Ended June 30, | |||||||||||||||
2019 | 2018 | ||||||||||||||
$ | Per Diluted Share— Accounting and Economic | $ | Per Diluted Share— Accounting and Economic | ||||||||||||
GAAP net income attributable to Encore, as reported | $ | 36,661 | $ | 1.17 | $ | 26,298 | $ | 1.00 | |||||||
Adjustments: | |||||||||||||||
Convertible notes and exchangeable notes non-cash interest and issuance cost amortization | 4,038 | 0.13 | 3,070 | 0.12 | |||||||||||
Amortization of certain acquired intangible assets(1) | 1,837 | 0.06 | 2,436 | 0.09 | |||||||||||
Acquisition, integration and restructuring related expenses(2) | 1,318 | 0.04 | 3,655 | 0.14 | |||||||||||
Loss on derivatives in connection with the Cabot Transaction(3) | — | — | 6,578 | 0.25 | |||||||||||
Adjustments attributable to noncontrolling interest(4) | — | — | 10 | — | |||||||||||
Net gain on fair value adjustments to contingent consideration(5) | (2,199 | ) | (0.07 | ) | (2,378 | ) | (0.09 | ) | |||||||
Income tax effect of above non-GAAP adjustments and certain discrete tax items(6) | (1,388 | ) | (0.05 | ) | (4,618 | ) | (0.18 | ) | |||||||
Adjusted net income attributable to Encore | $ | 40,267 | $ | 1.28 | $ | 35,051 | $ | 1.33 |
(1) | As we acquire debt solution service providers around the world, we also acquire intangible assets, such as trade names and customer relationships. 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 loss recognized on the forward contract we entered into in anticipation of the completion of the Cabot Transaction. We adjust for this amount because we believe the loss is not indicative of ongoing operations; therefore adjusting for this loss enhances comparability to prior periods, anticipated future periods, and our competitors’ results. |
(4) | 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. |
(5) | 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. |
(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. |
Three Months Ended June 30, | |||||||
2019 | 2018 | ||||||
GAAP total operating expenses, as reported | $ | 233,142 | $ | 246,314 | |||
Adjustments: | |||||||
Operating expenses related to non-portfolio purchasing and recovery business(1) | (42,232 | ) | (56,052 | ) | |||
Stock-based compensation expense | (3,581 | ) | (3,169 | ) | |||
Acquisition, integration and restructuring related expenses(2) | (1,318 | ) | (3,655 | ) | |||
Gain on fair value adjustments to contingent consideration(3) | 2,199 | 2,378 | |||||
Adjusted operating expenses related to portfolio purchasing and recovery business | $ | 188,210 | $ | 185,816 |
(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. |