News Release

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February 27, 2019 at 4:05 PM EST

Encore Capital Group Announces Fourth Quarter and Full-Year 2018 Financial Results

  • Encore sets new records for collections, revenues and profits for the year 
  • Record GAAP EPS from continuing operations of $4.06 in 2018, up 28%
  • Record Economic EPS from continuing operations of $4.98 in 2018, up 23%
  • 2018 global deployments of $1.13 billion, including a record $638 million in the U.S.

SAN DIEGO, Feb. 27, 2019 (GLOBE NEWSWIRE) -- Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2018.

“2018 was a year of significant achievement for Encore, characterized by our accomplishment of key objectives and record results,” said Ashish Masih, Encore’s President and Chief Executive Officer. “In order to capitalize on the favorable purchasing environment in the U.S., we deployed more capital in the United States in 2018 than in any prior year. Through our operational innovation and increased productivity, global collections and revenues increased to record levels. As a result, this performance helped generate record profitability and was key to delivering on our expectation of at least 20% growth in earnings per share for the year.”

“2018 was also a transformational year for Encore, during which we completed the acquisition of the remaining interest in Cabot. This established Encore as a clear leader in the U.K. in both debt purchasing and servicing. In addition, we are driving synergies through the combination of our Spanish operations as well as best practice sharing between our U.S. and European operations in key competencies such as data analytics, decision science, digital collections, speech analytics, collections platforms, and consumer-focused call techniques.”

“We ended the year on a high note, with fourth quarter GAAP and adjusted earnings both reaching all-time high levels. In the U.S., collections grew 15% in the quarter, driven by strong growth in our U.S. call center and digital channel, where collections were up 25% compared to the fourth quarter of last year. In Europe, revenues were up 13% for the quarter.”

“Finally, in anticipation of another strong year of investing in U.S. portfolios, we have already secured approximately $480 million dollars in forward flow purchase commitments for 2019, and we expect to continue to grow deployments,” said Masih.

Financial Highlights for the Fourth Quarter of 2018:

  • Estimated remaining collections (ERC) increased $209 million compared to the prior year, to $7.2 billion.
  • Portfolio purchases were $247 million, compared to $301 million deployed in the fourth quarter of 2017.
  • Gross collections were $484 million, up 11% compared to $438 million in the fourth quarter of 2017.
  • Total revenues, adjusted by net allowances and allowance reversals, were $349 million, up 10% compared to $317 million in the fourth quarter of 2017.
  • Total operating expenses were $233 million, compared to $253 million in the fourth quarter of 2017. This decline was largely the result of several expenses incurred specifically in 2017 including expenses related to the withdrawn Cabot IPO and other acquisition and restructuring related costs. Adjusted operating expenses were $191 million, compared to $182 million in the fourth quarter of 2017.
  • Total interest expense increased to $57 million, compared to $52 million in the fourth quarter of 2017, principally as a result of higher interest rates and Cabot refinancing costs.
  • GAAP net income from continuing operations attributable to Encore was a record $47 million, or $1.50 per fully diluted share, compared to $13 million, or $0.48 per fully diluted share, in the fourth quarter of 2017.
  • Adjusted income from continuing operations attributable to Encore was a record $45 million, compared to $28 million in the fourth quarter of 2017.
  • Adjusted income from continuing operations attributable to Encore (also referred to as Economic EPS) was $1.45 per share, compared to $1.05 per share in the fourth quarter of 2017.
  • As of December 31, 2018, after taking into account borrowing base and applicable debt covenants, available capacity under Encore’s U.S. revolving credit facility was $177 million, and availability under Cabot’s revolving credit facility was £151 million (approximately $192 million). These figures do not include cash on the balance sheet.

Financial Highlights for the Full Year of 2018:

  • Portfolio purchases for the full year were $1.13 billion, including a record $638 million in the U.S. and $455 million in Europe, compared to $1.06 billion deployed overall in 2017.
  • Gross collections were a record $1.97 billion, up 11% compared to $1.77 billion in 2017.
  • Total revenues, adjusted by net allowances and allowance reversals, were a record $1.36 billion, up 15% compared to $1.19 billion in 2017.
  • Total operating expenses were $957 million, compared to $862 million in 2017. This increase was principally the result of variable costs associated with the large increase in collections, expenses associated with Wescot, which was acquired in November 2017, and the Cabot transaction. Adjusted operating expenses were $745 million, compared to $698 million in 2017.
  • Total interest expense was $240 million, compared to $204 million in 2017, principally as a result of higher interest rates and Cabot refinancing costs.
  • GAAP net income from continuing operations attributable to Encore was a record $116 million, or $4.06 per fully diluted share, compared to $83 million, or $3.16 per fully diluted share, in 2017.
  • Adjusted income from continuing operations attributable to Encore was a record $142 million, or $4.98 per fully diluted share (also referred to as Economic EPS), compared to $106 million, or $4.04 per share in 2017.

Conference Call and Webcast
The Company will host a conference call and slide presentation today, February 27, 2019, at 2:00 p.m. Pacific time / 5:00 p.m. Eastern time to discuss fourth quarter and full year 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 3575827. 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 from continuing operations 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 from continuing operations 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 for consumers across a broad range of financial assets. Through its subsidiaries around the globe, Encore purchases portfolios of consumer receivables from major banks, credit unions, and utility providers.

Encore partners with individuals as they repay their debt 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, 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 the company 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 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, each as it may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements.

Contact:
Bruce Thomas
Encore Capital Group, Inc.
Vice President, Investor Relations
(858) 309-6442
bruce.thomas@encorecapital.com

SOURCE: Encore Capital Group, Inc.

FINANCIAL TABLES FOLLOW

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

  December 31,
2018
  December 31,
2017
Assets      
Cash and cash equivalents $ 157,418     $ 212,139  
Investment in receivable portfolios, net 3,137,893     2,890,613  
Deferred court costs, net 95,918     79,963  
Property and equipment, net 115,518     76,276  
Other assets 257,002     302,728  
Goodwill 868,126     928,993  
Total assets $ 4,631,875     $ 4,490,712  
Liabilities and Equity      
Liabilities:      
Accounts payable and accrued liabilities $ 287,945     $ 284,774  
Debt, net 3,490,633     3,446,876  
Other liabilities 33,609     35,151  
Total liabilities 3,812,187     3,766,801  
Commitments and contingencies      
Redeemable noncontrolling interest     151,978  
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, 30,884 shares and 25,801 shares issued and outstanding as of December 31, 2018 and December 31, 2017, respectively 309     258  
Additional paid-in capital 208,498     42,646  
Accumulated earnings 720,189     616,314  
Accumulated other comprehensive loss (110,987 )   (77,356 )
Total Encore Capital Group, Inc. stockholders’ equity 818,009     581,862  
Noncontrolling interest 1,679     (9,929 )
Total equity 819,688     571,933  
Total liabilities, redeemable equity and equity $ 4,631,875     $ 4,490,712  
               

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.

  December 31,
2018
  December 31,
2017
Assets      
Cash and cash equivalents $ 448     $ 88,902  
Investment in receivable portfolios, net 501,489     1,342,300  
Deferred court costs, net     26,482  
Property and equipment, net     23,138  
Other assets 9,563     122,263  
Goodwill     724,054  
Liabilities      
Accounts payable and accrued liabilities $ 4,556     $ 151,208  
Debt, net 445,837     2,014,202  
Other liabilities 46     1,494  
           

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

  (Unaudited)
Three Months Ended
December 31,
  Year Ended
 December 31,
  2018   2017   2018   2017
Revenues              
Revenue from receivable portfolios $ 298,104     $ 276,104     $ 1,167,132     $ 1,053,373  
Other revenues 40,616     30,666     153,425     92,429  
Total revenues 338,720     306,770     1,320,557     1,145,802  
Allowance reversals on receivable portfolios, net 10,001     10,711     41,473     41,236  
Total revenues, adjusted by net allowance reversals 348,721     317,481     1,362,030     1,187,038  
Operating expenses              
Salaries and employee benefits 93,211     94,446     369,064     315,742  
Cost of legal collections 49,621     50,598     205,204     200,058  
General and administrative expenses 35,189     55,330     158,352     158,080  
Other operating expenses 31,456     28,689     134,934     104,938  
Collection agency commissions 13,361     10,025     47,948     43,703  
Depreciation and amortization 9,996     14,158     41,228     39,977  
Total operating expenses 232,834     253,246     956,730     862,498  
Income from operations 115,887     64,235     405,300     324,540  
Other (expense) income              
Interest expense (56,956 )   (51,692 )   (240,048 )   (204,161 )
Other (expense) income (3,803 )   (1,157 )   (8,764 )   10,847  
Total other expense (60,759 )   (52,849 )   (248,812 )   (193,314 )
Income from continuing operations before income taxes 55,128     11,386     156,488     131,226  
Provision for income taxes (9,095 )   (8,607 )   (46,752 )   (52,049 )
Income from continuing operations 46,033     2,779     109,736     79,177  
Loss from discontinued operations, net of tax             (199 )
Net income 46,033     2,779     109,736     78,978  
Net loss attributable to noncontrolling interest 1,003     9,902     6,150     4,250  
Net income attributable to Encore Capital Group, Inc. stockholders $ 47,036     $ 12,681     $ 115,886     $ 83,228  
Amounts attributable to Encore Capital Group, Inc.:              
Income from continuing operations $ 47,036     $ 12,681     $ 115,886     $ 83,427  
Loss from discontinued operations, net of tax             (199 )
Net income $ 47,036     $ 12,681     $ 115,886     $ 83,228  
Earnings per share attributable to Encore Capital Group, Inc.:              
Basic earnings (loss) per share from:              
Continuing operations $ 1.51     $ 0.49     $ 4.09     $ 3.21  
Discontinued operations $     $     $     $ (0.01 )
Net basic earnings per share $ 1.51     $ 0.49     $ 4.09     $ 3.20  
Diluted earnings (loss) per share from:              
Continuing operations $ 1.50     $ 0.48     $ 4.06     $ 3.16  
Discontinued operations $     $     $     $ (0.01 )
Net diluted earnings per share $ 1.50     $ 0.48     $ 4.06     $ 3.15  
Weighted average shares outstanding:              
Basic 31,107     26,017     28,313     25,972  
Diluted 31,270     26,405     28,572     26,405  
                       

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

  Year Ended December 31,
  2018   2017   2016
Operating activities:          
Net income $ 109,736     $ 78,978     $ 16,817  
Adjustments to reconcile net income to net cash provided by operating activities:          
Loss from discontinued operations, net of income taxes     199     2,353  
Depreciation and amortization 41,228     39,977     34,868  
Interest expense related to financing 11,710          
Other non-cash expense, net 20,744     39,591     30,623  
Stock-based compensation expense 12,980     10,399     12,627  
Loss (gain) on derivative instruments, net 10,789     (3,915 )   (7,816 )
Deferred income taxes 16,814     28,970     (52,905 )
(Reversal of) provision for allowances on receivable portfolios, net (41,473 )   (41,236 )   84,177  
Changes in operating assets and liabilities          
Deferred court costs and other assets (35,626 )   (4,101 )   (20,364 )
Prepaid income tax and income taxes payable 24,284     (26,699 )   25,417  
Accounts payable, accrued liabilities and other liabilities 15,605     1,655     2,439  
Net cash provided by operating activities from continuing operations 186,791     123,818     128,236  
Net cash provided by operating activities from discontinued operations         2,096  
Net cash provided by operating activities 186,791     123,818     130,332  
Investing activities:          
Cash paid for acquisitions, net of cash acquired     (96,390 )   (675 )
Proceeds from divestiture of business, net of cash divested (1,877 )       106,041  
Purchases of assets held for sale         (19,874 )
Purchases of receivable portfolios, net of put-backs (1,131,095 )   (1,045,829 )   (907,413 )
Collections applied to investment in receivable portfolios, net 809,688     709,420     659,321  
Purchases of property and equipment (67,475 )   (28,126 )   (31,668 )
(Payment of) proceeds from derivative instruments, net (18,302 )   3,533     8,800  
Other, net 11,545     5,261     1,994  
Net cash used in investing activities from continuing operations (397,516 )   (452,131 )   (183,474 )
Net cash provided by investing activities from discontinued operations         14,685  
Net cash used in investing activities (397,516 )   (452,131 )   (168,789 )
Financing activities:          
Payment of loan costs (11,576 )   (28,972 )   (32,338 )
Payment related to debt financing (11,710 )        
Proceeds from credit facilities 942,186     1,434,480     586,016  
Repayment of credit facilities (571,144 )   (1,168,069 )   (615,857 )
Proceeds from senior secured notes     325,000     442,610  
Repayment of senior secured notes (91,578 )   (204,241 )   (352,549 )
Proceeds from issuance of convertible and exchangeable senior notes 172,500     150,000      
Repayment of convertible senior notes     (125,407 )    
Proceeds from other debt 27,694     33,197     36,172  
Repayment of other debt (42,456 )   (8,910 )   (15,388 )
Payment for the purchase of PECs and noncontrolling interest (234,101 )   (29,731 )   (4,842 )
Payment of direct and incremental costs relating to Cabot Transaction (8,622 )        
Other, net (4,816 )   870     (571 )
Net cash provided by financing activities 166,377     378,217     43,253  
Net increase in cash and cash equivalents (44,348 )   49,904     4,796  
Effect of exchange rate changes on cash and cash equivalents (10,373 )   12,470     (8,624 )
Cash and cash equivalents, beginning of period 212,139     149,765     153,593  
Cash and cash equivalents, end of period $ 157,418     $ 212,139     $ 149,765  
Cash and cash equivalents of discontinued operations, end of period          
Cash and cash equivalents of continuing operations, end of period $ 157,418     $ 212,139     $ 149,765  
Supplemental disclosures of cash flow information:          
Cash paid for interest $ 198,797     $ 162,545     $ 147,899  
Cash paid for income taxes, net 30,247     44,365     60,071  
Supplemental schedule of non-cash investing and financing activities:          
Stock consideration for the Cabot Transaction $ 180,559     $     $  
Conversion of convertible senior notes     28,277      
Fixed assets acquired through capital lease 3,283     3,577     55  
                 

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 December 31,
  2018   2017
  $   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 $ 47,036     $ 1.50     $ 1.50     $ 12,681     $ 0.48     $ 0.48  
Adjustments:                      
Convertible and exchangeable notes non-cash interest and issuance cost amortization 4,072     0.13     0.13     3,126     0.12     0.12  
Acquisition, integration and restructuring related expenses(1) (5,179 )   (0.17 )   (0.17 )   11,911     0.45     0.45  
Amortization of certain acquired intangible assets(2) 1,886     0.06     0.06     1,610     0.06     0.06  
Net gain on fair value adjustments to contingent considerations(3) (1,012 )   (0.03 )   (0.03 )   (49 )   0.00     0.00  
Expenses related to withdrawn Cabot IPO(4)             15,339     0.58     0.58  
Adjustments attributable to noncontrolling interest(5)             (13,965 )   (0.53 )   (0.53 )
Impact from tax reform(6)             1,182     0.05     0.05  
Income tax effect of the adjustments(7) (1,316 )   (0.04 )   (0.04 )   (4,183 )   (0.16 )   (0.16 )
Adjusted income from continuing operations attributable to Encore $ 45,487     $ 1.45     $ 1.45     $ 27,652     $ 1.05     $ 1.05  

________________________

(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)   As we acquired debt solution service providers around the world, our acquired intangible assets, such as trade names and customer relationships, increased 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.
(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 Cabot in 2017. 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)   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.
(7)   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.
     

 

  Year Ended December 31,
  2018   2017
  $   Per Diluted
Share—
Accounting
and
Economic
  $   Per Diluted
Share—
Accounting
  Per Diluted
Share—
Economic
GAAP net income from continuing operations attributable to Encore, as reported $ 115,886     $ 4.06     $ 83,427     $ 3.16     $ 3.18  
Adjustments:                  
Convertible and exchangeable notes non-cash interest and issuance cost amortization 13,896     0.50     12,353     0.47     0.47  
Acquisition, integration and restructuring related expenses(1) 11,506     0.40     16,628     0.63     0.63  
Loss on derivatives in connection with the Cabot Transaction(2) 9,315     0.33              
Amortization of certain acquired intangible assets(3) 8,337     0.29     3,561     0.13     0.14  
Expenses related to withdrawn Cabot IPO(4) 2,984     0.10     15,339     0.58     0.58  
Settlement fees and related administrative expenses(5)                  
Impact from tax reform(6)         1,182     0.05     0.05  
Adjustments attributable to noncontrolling interest(7) (5,022 )   (0.18 )   (15,720 )   (0.60 )   (0.60 )
Net gain on fair value adjustments to contingent considerations(8) (5,664 )   (0.20 )   (2,822 )   (0.11 )   (0.11 )
Income tax effect of the adjustments(9) (9,079 )   (0.32 )   (7,936 )   (0.30 )   (0.30 )
Adjusted income from continuing operations attributable to Encore $ 142,159     $ 4.98     $ 106,012     $ 4.01     $ 4.04  

________________________

(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 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.
(3)   As we acquired debt solution service providers around the world, our acquired intangible assets, such as trade names and customer relationships, increased 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.
(4)   Amount represents expenses related to the proposed and later withdrawn initial public offering by Cabot in 2017. 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)   Amount represents litigation and government settlement fees and related administrative expenses for 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.
(6)   As a result of the Tax Reform Act, we incurred a net additional tax expense of approximately $1.2 million during the year ended December 31, 2017. 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.
(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)   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.
(9)   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.
     

 

  Three Months Ended December 31,   Year Ended December 31,
2018   2017   2018   2017
GAAP total operating expenses, as reported $ 232,834     $ 253,246     $ 956,730     $ 862,498  
Adjustments:              
Operating expenses related to non-portfolio purchasing and recovery business(1) (45,069 )   (41,164 )   (193,715 )   (125,028 )
Stock-based compensation expense (2,528 )   (3,358 )   (12,980 )   (10,399 )
Acquisition, integration and restructuring related operating expenses(2) 5,179     (11,911 )   (7,523 )   (16,628 )
Expenses related to withdrawn Cabot IPO(3)     (15,339 )   (2,984 )   (15,339 )
Net gain on fair value adjustments to contingent considerations(4) 1,012     49     5,664     2,822  
Adjusted operating expenses related to portfolio purchasing and recovery business $ 191,428     $ 181,523     $ 745,192     $ 697,926  

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(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 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 expenses related to the proposed and later withdrawn initial public offering by Cabot in 2017. 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.
(4)   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.
     

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Source: Encore Capital Group Inc