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 second quarter ended June
30, 2017.
“The second quarter for Encore was a period of solid financial
and operational performance. The domestic debt market continues to
grow in supply and provides for a favorable purchasing
environment,” said Ashish Masih, President and Chief Executive
Officer. “Liquidation improvement initiatives are delivering
sustained improved collections performance in the U.S. and in
Europe over a wide array of vintages, allowing us to record better
returns and increase expectations for future collections. Also in
Europe, we had a strong quarter of portfolio purchasing and the IPO
process for our subsidiary Cabot Credit Management remains on
track.”
Key Financial Metrics for the Second Quarter of
2017:
- 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.
Conference Call and Webcast
Encore will host a conference call and slide presentation today,
August 3, 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 61737334. 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 cash
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.
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 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.
FINANCIAL TABLES FOLLOW
|
ENCORE CAPITAL GROUP, INC. |
Condensed Consolidated Statements of Financial
Condition |
(In Thousands, Except Par Value Amounts) |
(Unaudited) |
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
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 |
|
|
|
|
|
|
|
ENCORE CAPITAL GROUP, INC. |
Condensed Consolidated Statements of
Income |
(In Thousands, Except Per Share Amounts) |
(Unaudited) |
|
|
|
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 |
|
|
|
|
|
|
|
ENCORE CAPITAL GROUP, INC. |
Condensed Consolidated Statements of Cash
Flows |
(Unaudited, In Thousands) |
|
|
|
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 |
|
|
|
|
|
|
|
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 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.
Contact:
Bruce Thomas
Vice President, Investor Relations
Encore Capital Group, Inc.
(858) 309-6442
bruce.thomas@encorecapital.com
Encore Capital (NASDAQ:ECPG)
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From Mar 2024 to Apr 2024
Encore Capital (NASDAQ:ECPG)
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From Apr 2023 to Apr 2024