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CST: 09/12/2019 17:10:55   

Encore Capital Group Announces Second Quarter 2019 Financial Results

124 Days ago

  • 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

SAN DIEGO, Aug. 07, 2019 (GLOBE NEWSWIRE) -- Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company, today reported consolidated financial results for the second quarter ended June 30, 2019.

“Similar to the past several quarters, the second quarter for Encore was another period of strong financial and operational performance, which drove record outcomes in several key measures across our business,” said Ashish Masih, President and Chief Executive Officer. “We achieved new highs in global cash collections and estimated remaining collections, reflecting our focus on operational innovation and increased productivity. Importantly, we are driving improved operating leverage as we collect more efficiently, and as the majority of our collections are now derived from portfolios with higher returns when compared to prior years.”

“In the U.S., we set new records for collections and revenues, and we continue to benefit from collecting an increasingly higher proportion of cash receipts through our lower cost call center and digital channel.”

“In Europe, cash collections grew 7% and estimated remaining collections grew 6%, both in constant currency terms. At the same time, Cabot’s debt leverage continues to improve, as we maintain our focus on capital allocation, being more selective in our portfolio purchases and improving operating efficiency,” said Masih.

In June, the Company successfully refinanced two tranches of Cabot senior secured notes due in 2021 through the issuance of €400 million of senior secured floating-rate notes due in 2024, which extended Cabot’s maturity profile and increased the Company’s financial flexibility. As a result of the refinancing, the Company incurred a $9 million expense, which impacted both GAAP net income and adjusted net income in the second quarter.

Key Financial Metrics for the Second Quarter of 2019:

  • 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).

Conference Call and Webcast

Encore will host a conference call and slide presentation today, August 7, 2019, at 2:00 p.m. Pacific / 5:00 p.m. Eastern time, to present and discuss second 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 ID number 5787711. 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.

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


ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)

  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  

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.

  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  

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

  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  

ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)

  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  


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,
  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.

 

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