Encore Capital Group Announces Second Quarter 2019 Financial Results
- 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
$1.17per share and non-GAAP Economic EPS of $1.28per share, which both include a $0.23per share expense related to the June refinancing of Cabot’s debt that was maturing in 2021
“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
“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
Key Financial Metrics for the Second Quarter of 2019:
- Estimated remaining collections (ERC) increased
$134 millioncompared to the end of the same period of the prior year, to a record $7.4 billion.
- Portfolio purchases were
$243 million, including $180 millionin the U.S. and $57 millionin Europe.
- Gross collections increased 4% to a record
$515 million, compared to $496 millionin the same period of the prior year.
- Total revenues, adjusted by net allowances, decreased 1% to
$347 million, compared to $350 millionin the second quarter of 2018, principally as a result of $14.5 millionof European allowance reversals recorded in the same period a year ago.
- Total operating expenses decreased 5% to
$233 million, compared to $246 millionin 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 millionin the same period of the prior year.
- Total interest expense increased to
$63.9 million, compared to $60.5 millionin the same period of the prior year, principally as a result of approximately $9 millionof expenses related to the June refinancing of Cabot’s debt.
- GAAP net income attributable to Encore was
$36.7 million, or $1.17per fully diluted share, which includes a $0.23per share expense associated with the June refinancing of Cabot’s debt. This compares to $26.3 million, or $1.00per fully diluted share in the second quarter of 2018.
- Adjusted net income attributable to Encore was
$40.3 million, or $1.28per fully diluted share, which includes a $0.23per share expense associated with the June refinancing of Cabot’s debt. This compares to $35.1 million, or $1.33per 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 millionand 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
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.
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
Vice President, Investor Relations
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
|Cash and cash equivalents||$||168,565||$||157,418|
|Investment in receivable portfolios, net||3,224,568||3,137,893|
|Deferred court costs, net||92,595||95,918|
|Property and equipment, net||118,001||115,518|
|Liabilities and Equity|
|Accounts payable and accrued liabilities||$||218,837||$||287,945|
|Commitments and contingencies|
|Convertible preferred stock, $0.01 par value, 5,000 shares authorized, no shares issued and outstanding||—||—|
|Common stock, $0.01 par value, 75,000 and 50,000 shares authorized, 30,980 and 30,884 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively||310||309|
|Additional paid-in capital||211,508||208,498|
|Accumulated other comprehensive loss||(117,427||)||(110,987||)|
|Total Encore Capital Group, Inc. stockholders’ equity||900,495||818,009|
|Total liabilities and equity||$||4,811,025||$||4,631,875|
The following table presents certain assets and liabilities of consolidated variable interest entities (“VIEs”) included in the consolidated statements of financial condition above. Most assets in the table below include those assets that can only be used to settle obligations of consolidated VIEs. The liabilities exclude amounts where creditors or beneficial interest holders have recourse to the general credit of the Company.
|Cash and cash equivalents||$||164||$||448|
|Investment in receivable portfolios, net||503,586||501,489|
|Accounts payable and accrued liabilities||$||—||$||4,556|
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
|Three Months Ended
|Revenue from receivable portfolios||$||312,495||$||292,662|
|Allowance reversals on receivable portfolios, net||2,063||17,632|
|Total revenues, adjusted by net allowances||346,874||349,747|
|Salaries and employee benefits||96,227||90,960|
|Cost of legal collections||51,448||51,255|
|Other operating expenses||29,546||39,039|
|Collection agency commissions||13,560||12,151|
|General and administrative expenses||32,620||41,986|
|Depreciation and amortization||9,741||10,923|
|Total operating expenses||233,142||246,314|
|Income from operations||113,732||103,433|
|Total other expense||(65,157||)||(65,151||)|
|Income from operations before income taxes||48,575||38,282|
|Provision for income taxes||(11,753||)||(11,308||)|
|Net income attributable to noncontrolling interest||(161||)||(676||)|
|Net income attributable to Encore Capital Group, Inc. stockholders||$||36,661||$||26,298|
|Earnings per share attributable to Encore Capital Group, Inc.:|
|Weighted average shares outstanding:|
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
|Six Months Ended
|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||)|
|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|
|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||)|
|Net cash used in investing activities||(115,688||)||(240,887||)|
|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||)|
|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||$||181,657|
Supplemental Financial Information
Reconciliation of Adjusted Income Attributable to Encore to GAAP Net Income Attributable to Encore and Adjusted Operating Expenses Related to Portfolio Purchasing and Recovery Business to GAAP Total Operating Expenses
(In Thousands, Except Per Share amounts) (Unaudited)
|Three Months Ended June 30,|
Accounting and Economic
Accounting and Economic
|GAAP net income attributable to Encore, as reported||$||36,661||$||1.17||$||26,298||$||1.00|
|Convertible notes and exchangeable notes non-cash interest and issuance cost amortization||4,038||0.13||3,070||0.12|
|Amortization of certain acquired intangible assets(1)||1,837||0.06||2,436||0.09|
|Acquisition, integration and restructuring related expenses(2)||1,318||0.04||3,655||0.14|
|Loss on derivatives in connection with the Cabot Transaction(3)||—||—||6,578||0.25|
|Adjustments attributable to noncontrolling interest(4)||—||—||10||—|
|Net gain on fair value adjustments to contingent consideration(5)||(2,199||)||(0.07||)||(2,378||)||(0.09||)|
|Income tax effect of above non-GAAP adjustments and certain discrete tax items(6)||(1,388||)||(0.05||)||(4,618||)||(0.18||)|
|Adjusted net income attributable to Encore||$||40,267||$||1.28||$||35,051||$||1.33|
- 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.
- 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.
- 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.
- 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.
- 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.
- 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
|GAAP total operating expenses, as reported||$||233,142||$||246,314|
|Operating expenses related to non-portfolio purchasing and recovery business(1)||(42,232||)||(56,052||)|
|Stock-based compensation expense||(3,581||)||(3,169||)|
|Acquisition, integration and restructuring related expenses(2)||(1,318||)||(3,655||)|
|Gain on fair value adjustments to contingent consideration(3)||2,199||2,378|
|Adjusted operating expenses related to portfolio purchasing and recovery business||$||188,210||$||185,816|
- 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.
- 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.
- 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.
Source: Encore Capital Group Inc