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 |
ENCORE CAPITAL GROUP, INC. | |
Date: February 21, 2018 | /s/ Jonathan C. Clark |
Jonathan C. Clark | |
Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit Number | Description |
99.1 | Press release dated February 21, 2018 |
Exhibit 99.1 |
• | Estimated Remaining Collections increased to a record $7.0 billion |
• | Collections in 2017 reached an all-time high of $1.8 billion for the year |
• | Fourth quarter deployments of $170 million in the U.S., $301 million worldwide |
• | Estimated Remaining Collections (ERC) grew $1.1 billion compared to the same period of the prior year, to $7.0 billion. |
• | Investment in receivable portfolios was $301 million, including $170 million in the U.S. and $110 million in Europe, compared to $210 million deployed overall in the same period a year ago. |
• | Gross collections were $438 million, compared to $397 million in the same period of the prior year. |
• | Total revenues were $317 million, compared to $271 million in the fourth quarter of 2016. |
• | Total operating expenses were $253 million, compared to $184 million in the same period of the prior year. This increase was a result of several factors including: the impact of expenses related to the withdrawn Cabot IPO; the acquisition of Wescot and related restructuring costs; tax planning related to the U.S. Tax Cuts and Jobs Act; and investments in the expansion of our collections capacity. Adjusted operating expenses were $182 million, compared to $152 million in the same period of the prior year. |
• | Total interest expense increased to $51.7 million, compared to $48.4 million in the same period of the prior year. |
• | GAAP net income from continuing operations attributable to Encore was $12.7 million, or $0.48 per fully diluted share, compared to $22.0 million, or $0.85 per fully diluted share, in the same |
• | Adjusted income from continuing operations attributable to Encore was $27.7 million, compared to $18.7 million in the same period of the prior year. |
• | Adjusted income from continuing operations attributable to Encore per share (also referred to as Economic EPS) was $1.05, compared to $0.72 in the same period of the prior year. |
• | Available capacity under Encore’s revolving credit facility, subject to borrowing base and applicable debt covenants, was $213 million as of December 31, 2017. |
• | Investment in receivable portfolios for the full year was $1.1 billion, including $536 million in the U.S. and $464 million in Europe, compared to $0.9 billion deployed overall in 2016. |
• | Gross collections were $1.8 billion, compared to $1.7 billion in 2016. |
• | Total revenues were $1.2 billion, compared to $1.0 billion in 2016. |
• | Total operating expenses were $862 million, compared to $788 million in 2016. Adjusted operating expenses were $698 million, compared to $648 million in 2016 as we invested in the expansion of our collections capacity. |
• | Total interest expense was $204 million, compared to $198 million in 2016. |
• | GAAP net income from continuing operations attributable to Encore was $83.4 million, or $3.16 per fully diluted share, compared to $78.9 million, or $3.05 per fully diluted share, in 2016. |
• | Adjusted income from continuing operations attributable to Encore was $106.0 million, compared to $90.1 million in 2016. |
• | Adjusted income from continuing operations attributable to Encore per share (also referred to as Economic EPS) was $4.04, compared to $3.48 in 2016. |
December 31, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 212,139 | $ | 149,765 | |||
Investment in receivable portfolios, net | 2,890,613 | 2,382,809 | |||||
Deferred court costs, net | 79,963 | 65,187 | |||||
Property and equipment, net | 76,276 | 72,257 | |||||
Other assets | 302,728 | 215,447 | |||||
Goodwill | 928,993 | 785,032 | |||||
Total assets | $ | 4,490,712 | $ | 3,670,497 | |||
Liabilities and equity | |||||||
Liabilities: | |||||||
Accounts payable and accrued liabilities | $ | 284,774 | $ | 234,398 | |||
Debt, net | 3,446,876 | 2,805,983 | |||||
Other liabilities | 35,151 | 29,601 | |||||
Total liabilities | 3,766,801 | 3,069,982 | |||||
Commitments and contingencies | |||||||
Redeemable noncontrolling interest | 151,978 | 45,755 | |||||
Redeemable equity component of convertible senior notes | — | 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, 25,801 shares and 25,593 shares issued and outstanding as of December 31, 2017 and December 31, 2016, respectively | 258 | 256 | |||||
Additional paid-in capital | 42,646 | 103,392 | |||||
Accumulated earnings | 616,314 | 560,567 | |||||
Accumulated other comprehensive loss | (77,356 | ) | (104,911 | ) | |||
Total Encore Capital Group, Inc. stockholders’ equity | 581,862 | 559,304 | |||||
Noncontrolling interest | (9,929 | ) | (7,539 | ) | |||
Total equity | 571,933 | 551,765 | |||||
Total liabilities, redeemable equity and equity | $ | 4,490,712 | $ | 3,670,497 |
December 31, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 88,902 | $ | 55,823 | |||
Investment in receivable portfolios, net | 1,342,300 | 972,841 | |||||
Deferred court costs, net | 26,482 | 22,760 | |||||
Property and equipment, net | 23,138 | 19,284 | |||||
Other assets | 122,263 | 79,767 | |||||
Goodwill | 724,054 | 584,868 | |||||
Liabilities | |||||||
Accounts payable and accrued liabilities | $ | 151,208 | $ | 99,689 | |||
Debt, net | 2,014,202 | 1,514,799 | |||||
Other liabilities | 1,494 | 1,921 |
(Unaudited) Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | |||||||||||||||
Revenue from receivable portfolios, net | $ | 286,815 | $ | 249,535 | $ | 1,094,609 | $ | 946,615 | |||||||
Other revenues | 30,666 | 21,849 | 92,429 | 82,643 | |||||||||||
Total revenues | 317,481 | 271,384 | 1,187,038 | 1,029,258 | |||||||||||
Operating expenses | |||||||||||||||
Salaries and employee benefits | 94,446 | 68,173 | 315,742 | 281,097 | |||||||||||
Cost of legal collections | 50,598 | 42,808 | 200,058 | 200,855 | |||||||||||
Other operating expenses | 28,689 | 25,317 | 104,938 | 100,737 | |||||||||||
Collection agency commissions | 10,025 | 7,899 | 43,703 | 36,141 | |||||||||||
General and administrative expenses | 55,330 | 31,002 | 158,080 | 134,046 | |||||||||||
Depreciation and amortization | 14,158 | 8,740 | 39,977 | 34,868 | |||||||||||
Total operating expenses | 253,246 | 183,939 | 862,498 | 787,744 | |||||||||||
Income from operations | 64,235 | 87,445 | 324,540 | 241,514 | |||||||||||
Other (expense) income | |||||||||||||||
Interest expense | (51,692 | ) | (48,447 | ) | (204,161 | ) | (198,367 | ) | |||||||
Other (expense) income | (1,157 | ) | (130 | ) | 10,847 | 14,228 | |||||||||
Total other expense | (52,849 | ) | (48,577 | ) | (193,314 | ) | (184,139 | ) | |||||||
Income from continuing operations before income taxes | 11,386 | 38,868 | 131,226 | 57,375 | |||||||||||
Provision for income taxes | (8,607 | ) | (28,374 | ) | (52,049 | ) | (38,205 | ) | |||||||
Income from continuing operations | 2,779 | 10,494 | 79,177 | 19,170 | |||||||||||
Income (loss) from discontinued operations, net of tax | — | 829 | (199 | ) | (2,353 | ) | |||||||||
Net income | 2,779 | 11,323 | 78,978 | 16,817 | |||||||||||
Net loss attributable to noncontrolling interest | 9,902 | 11,489 | 4,250 | 59,753 | |||||||||||
Net income attributable to Encore Capital Group, Inc. stockholders | $ | 12,681 | $ | 22,812 | $ | 83,228 | $ | 76,570 | |||||||
Amounts attributable to Encore Capital Group, Inc.: | |||||||||||||||
Income from continuing operations | $ | 12,681 | $ | 21,983 | $ | 83,427 | $ | 78,923 | |||||||
Income (loss) from discontinued operations, net of tax | — | 829 | (199 | ) | (2,353 | ) | |||||||||
Net income | $ | 12,681 | $ | 22,812 | $ | 83,228 | $ | 76,570 | |||||||
Earnings (loss) per share attributable to Encore Capital Group, Inc.: | |||||||||||||||
Basic earnings (loss) per share from: | |||||||||||||||
Continuing operations | $ | 0.49 | $ | 0.85 | $ | 3.21 | $ | 3.07 | |||||||
Discontinued operations | $ | — | $ | 0.03 | $ | (0.01 | ) | $ | (0.09 | ) | |||||
Net basic earnings per share | $ | 0.49 | $ | 0.88 | $ | 3.20 | $ | 2.98 | |||||||
Diluted earnings (loss) per share from: | |||||||||||||||
Continuing operations | $ | 0.48 | $ | 0.85 | $ | 3.16 | $ | 3.05 | |||||||
Discontinued operations | $ | — | $ | 0.03 | $ | (0.01 | ) | $ | (0.09 | ) | |||||
Net diluted earnings per share | $ | 0.48 | $ | 0.88 | $ | 3.15 | $ | 2.96 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 26,017 | 25,792 | 25,972 | 25,713 | |||||||||||
Diluted | 26,405 | 25,993 | 26,405 | 25,909 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Operating activities: | |||||||||||
Net income | $ | 78,978 | $ | 16,817 | $ | 47,384 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Loss from discontinued operations, net of income taxes | 199 | 2,353 | 23,387 | ||||||||
Depreciation and amortization | 39,977 | 34,868 | 33,160 | ||||||||
Other non-cash expense, net | 35,676 | 22,807 | 35,104 | ||||||||
Stock-based compensation expense | 10,399 | 12,627 | 22,008 | ||||||||
Deferred income taxes | 28,970 | (52,905 | ) | (16,665 | ) | ||||||
(Reversal of) provision for allowances on receivable portfolios, net | (41,236 | ) | 84,177 | (6,763 | ) | ||||||
Changes in operating assets and liabilities | |||||||||||
Deferred court costs and other assets | (4,101 | ) | (20,364 | ) | (33,430 | ) | |||||
Prepaid income tax and income taxes payable | (26,699 | ) | 25,417 | (29,504 | ) | ||||||
Accounts payable, accrued liabilities and other liabilities | 1,655 | 2,439 | 43,135 | ||||||||
Net cash provided by operating activities from continuing operations | 123,818 | 128,236 | 117,816 | ||||||||
Net cash provided by (used in) operating activities from discontinued operations | — | 2,096 | (1,667 | ) | |||||||
Net cash provided by operating activities | 123,818 | 130,332 | 116,149 | ||||||||
Investing activities: | |||||||||||
Cash paid for acquisitions, net of cash acquired | (96,390 | ) | (675 | ) | (276,575 | ) | |||||
Proceeds from divestiture of business, net of cash divested | — | 106,041 | — | ||||||||
Purchases of assets held for sale | — | (19,874 | ) | — | |||||||
Purchases of receivable portfolios, net of put-backs | (1,045,829 | ) | (907,413 | ) | (749,760 | ) | |||||
Collections applied to investment in receivable portfolios, net | 709,420 | 659,321 | 635,899 | ||||||||
Purchases of property and equipment | (28,126 | ) | (31,668 | ) | (28,624 | ) | |||||
Other, net | 8,794 | 10,794 | (1,233 | ) | |||||||
Net cash used in investing activities from continuing operations | (452,131 | ) | (183,474 | ) | (420,293 | ) | |||||
Net cash provided by (used in) used in investing activities from discontinued operations | — | 14,685 | (52,416 | ) | |||||||
Net cash used in investing activities | (452,131 | ) | (168,789 | ) | (472,709 | ) | |||||
Financing activities: | |||||||||||
Payment of loan costs | (28,972 | ) | (32,338 | ) | (17,995 | ) | |||||
Proceeds from credit facilities | 1,434,480 | 586,016 | 1,084,393 | ||||||||
Repayment of credit facilities | (1,168,069 | ) | (615,857 | ) | (898,086 | ) | |||||
Proceeds from senior secured notes | 325,000 | 442,610 | 332,693 | ||||||||
Repayment of senior secured notes | (204,241 | ) | (352,549 | ) | (15,000 | ) | |||||
Proceeds from issuance of convertible senior notes | 150,000 | — | — | ||||||||
Repayment of convertible senior notes | (125,407 | ) | — | — | |||||||
Repayment of securitized notes | — | (935 | ) | (44,251 | ) | ||||||
Repurchase of common stock | — | — | (33,185 | ) | |||||||
Proceeds from other debt | 33,197 | 36,172 | — | ||||||||
Payment for the purchase of noncontrolling interest | (29,731 | ) | (4,842 | ) | — | ||||||
Other, net | (8,040 | ) | (15,024 | ) | (8,448 | ) | |||||
Net cash provided by financing activities | 378,217 | 43,253 | 400,121 | ||||||||
Net increase in cash and cash equivalents | 49,904 | 4,796 | 43,561 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 12,470 | (8,624 | ) | (14,131 | ) | ||||||
Cash and cash equivalents, beginning of period | 149,765 | 153,593 | 124,163 | ||||||||
Cash and cash equivalents, end of period | 212,139 | 149,765 | 153,593 | ||||||||
Cash and cash equivalents of discontinued operations, end of period | — | — | 29,600 | ||||||||
Cash and cash equivalents of continuing operations, end of period | $ | 212,139 | $ | 149,765 | $ | 123,993 | |||||
Supplemental disclosures of cash flow information: | |||||||||||
Cash paid for interest | $ | 162,545 | $ | 147,899 | $ | 151,946 | |||||
Cash paid for income taxes, net | 44,365 | 60,071 | 84,101 | ||||||||
Supplemental schedule of non-cash investing and financing activities: | |||||||||||
Conversion of convertible senior notes | $ | 28,277 | $ | — | $ | — | |||||
Fixed assets acquired through capital lease | 3,577 | 55 | 2,220 |
Three Months Ended December 31, | |||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||
$ | Per Diluted Share— Accounting | Per Diluted Share— Economic | $ | Per Diluted Share— Accounting | Per Diluted Share— Economic | ||||||||||||||||||
GAAP net income from continuing operations attributable to Encore, as reported | $ | 12,681 | $ | 0.48 | $ | 0.48 | $ | 21,983 | $ | 0.85 | $ | 0.85 | |||||||||||
Adjustments: | |||||||||||||||||||||||
Convertible notes non-cash interest and issuance cost amortization | 3,126 | 0.12 | 0.12 | 3,017 | 0.12 | 0.12 | |||||||||||||||||
Acquisition, integration and restructuring related expenses(1) | 11,911 | 0.45 | 0.45 | 7,457 | 0.29 | 0.29 | |||||||||||||||||
Net gain on fair value adjustments to contingent considerations(2) | (49 | ) | — | — | (8,111 | ) | (0.31 | ) | (0.31 | ) | |||||||||||||
Amortization of certain acquired intangible assets(3) | 1,610 | 0.06 | 0.06 | 415 | 0.02 | 0.02 | |||||||||||||||||
Expenses related to withdrawn Cabot IPO(4) | 15,339 | 0.58 | 0.58 | — | — | — | |||||||||||||||||
Income tax effect of the adjustments(5) | (4,183 | ) | (0.16 | ) | (0.16 | ) | (3,693 | ) | (0.15 | ) | (0.15 | ) | |||||||||||
Adjustments attributable to noncontrolling interest(6) | (13,965 | ) | (0.53 | ) | (0.53 | ) | (2,402 | ) | (0.10 | ) | (0.10 | ) | |||||||||||
Impact from tax reform(7) | 1,182 | 0.05 | 0.05 | — | — | — | |||||||||||||||||
Adjusted income from continuing operations attributable to Encore | $ | 27,652 | $ | 1.05 | $ | 1.05 | (8) | $ | 18,666 | $ | 0.72 | $ | 0.72 |
(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 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. |
(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, particularly in recent quarters. 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) | In October 2017, Cabot announced its intention to proceed with an initial public offering and to apply for admission of its ordinary shares to the premium listing segment of the Official List of the Financial Conduct Authority and to trade on the main market for listed securities of the London Stock Exchange. In November 2017, Encore announced that Cabot has decided to not go forward with its previously announced initial public offering as a result of poor performance of other IPOs on the London Stock Exchange and unfavorable equity market conditions in the U.K. 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) | 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. |
(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. |
(7) | As a result of the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”), we incurred a net additional tax expense of approximately $1.2 million. We believe the Tax Reform Act related expenses are not indicative of our ongoing operations, therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results. |
(8) | Adjusted income from continuing operations attributable to Encore per economic share includes $0.40 of adjustments to Cabot’s EPS contribution after tax and noncontrolling interest, consisting primarily of a portion of expenses related to the withdrawn Cabot IPO as well as restructuring charges related to Cabot’s acquisition of Wescot. |
Year Ended December 31, | |||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||
$ | Per Diluted Share— Accounting | Per Diluted Share— Economic | $ | Per Diluted Share— Accounting | Per Diluted Share— Economic | ||||||||||||||||||
GAAP net income from continuing operations attributable to Encore, as reported | $ | 83,427 | $ | 3.16 | $ | 3.18 | $ | 78,923 | $ | 3.05 | $ | 3.05 | |||||||||||
Adjustments: | |||||||||||||||||||||||
Convertible notes non-cash interest and issuance cost amortization | 12,353 | 0.47 | 0.47 | 11,830 | 0.46 | 0.46 | |||||||||||||||||
Acquisition, integration and restructuring related expenses(1) | 16,628 | 0.63 | 0.63 | 17,630 | 0.68 | 0.68 | |||||||||||||||||
Net gain on fair value adjustments to contingent considerations(2) | (2,822 | ) | (0.11 | ) | (0.11 | ) | (8,111 | ) | (0.31 | ) | (0.31 | ) | |||||||||||
Settlement fees and related administrative expenses(3) | — | — | — | 6,299 | 0.24 | 0.24 | |||||||||||||||||
Amortization of certain acquired intangible assets(4) | 3,561 | 0.13 | 0.14 | 2,593 | 0.10 | 0.10 | |||||||||||||||||
Expenses related to withdrawn Cabot IPO(5) | 15,339 | 0.58 | 0.58 | — | — | — | |||||||||||||||||
Income tax effect of the adjustments(6) | (7,936 | ) | (0.30 | ) | (0.30 | ) | (12,577 | ) | (0.49 | ) | (0.49 | ) | |||||||||||
Adjustments attributable to noncontrolling interest(7) | (15,720 | ) | (0.60 | ) | (0.60 | ) | (6,461 | ) | (0.25 | ) | (0.25 | ) | |||||||||||
Impact from tax reform(8) | 1,182 | 0.05 | 0.05 | — | — | — | |||||||||||||||||
Adjusted income from continuing operations attributable to Encore | $ | 106,012 | $ | 4.01 | $ | 4.04 | $ | 90,126 | $ | 3.48 | $ | 3.48 |
(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 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. |
(3) | Amount represents litigation and government settlement fees and related administrative expenses. For the year ended December 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. |
(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, particularly in recent quarters. 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) | In October 2017, Cabot announced its intention to proceed with an initial public offering and to apply for admission of its ordinary shares to the premium listing segment of the Official List of the Financial Conduct Authority and to trade on the main market for listed securities of the London Stock Exchange. In November 2017, Encore announced that Cabot has decided to not go forward with its previously announced initial public offering as a result of poor performance of other IPOs on the London Stock Exchange and unfavorable equity market conditions in the U.K. 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. |
(6) | 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. |
(7) | 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. |
(8) | As a result of the Tax Reform Act, we incurred a net additional tax expense of approximately $1.2 million. We believe the Tax Reform Act related expenses are not indicative of our ongoing operations, therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results. |
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
GAAP total operating expenses, as reported | $ | 253,246 | $ | 183,939 | $ | 862,498 | $ | 787,744 | |||||||
Adjustments: | |||||||||||||||
Stock-based compensation expense | (3,358 | ) | (3,125 | ) | (10,399 | ) | (12,627 | ) | |||||||
Operating expenses related to non-portfolio purchasing and recovery business(1) | (41,164 | ) | (29,291 | ) | (125,028 | ) | (110,875 | ) | |||||||
Acquisition, integration and restructuring related operating expenses(2) | (11,911 | ) | (7,457 | ) | (16,628 | ) | (17,630 | ) | |||||||
Net gain on fair value adjustments to contingent considerations(3) | 49 | 8,111 | 2,822 | 8,111 | |||||||||||
Settlement fees and related administrative expenses(4) | — | — | — | (6,299 | ) | ||||||||||
Expenses related to withdrawn Cabot IPO(5) | (15,339 | ) | — | (15,339 | ) | — | |||||||||
Adjusted operating expenses related to portfolio purchasing and recovery business | $ | 181,523 | $ | 152,177 | $ | 697,926 | $ | 648,424 |
(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 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 litigation and government settlement fees and related administrative expenses. For the year ended December 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. |
(5) | In October 2017, Cabot announced its intention to proceed with an initial public offering and to apply for admission of its ordinary shares to the premium listing segment of the Official List of the Financial Conduct Authority and to trade on the main market for listed securities of the London Stock Exchange. In November 2017, Encore announced that Cabot has decided to not go forward with its previously announced initial public offering as a result of poor performance of other IPOs on the London Stock Exchange and unfavorable equity market conditions in the U.K. 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. |