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Encore Capital Group Announces Third Quarter 2017 Financial Results
- Improved global collections and favorable U.S. market conditions drive higher returns
- Estimated Remaining Collections of
$6.6 billionestablishes new all-time high
“The third quarter for Encore was a period of solid financial and operational performance. In the U.S., our largest market, the supply of charged-off credit card debt continues to grow and the pricing environment remains favorable. These market conditions coupled with improved collections performance are driving higher returns than a year ago,” said
Key Financial Metrics for the Third Quarter of 2017:
- Estimated Remaining Collections (ERC) grew 15% compared to the same period of the prior year, to
- Investment in receivable portfolios was
$292 million, including $111 millionin the U.S. and $177 millionin Europe, compared to $206 milliondeployed overall in the same period a year ago.
- Gross collections grew 9% to
$443 million, compared to $407 millionin the same period of the prior year.
- Total revenues were
$307 million, compared to $179 millionin the third quarter of 2016. Excluding a $28.0 millionallowance reversal recorded in the third quarter of 2017 resulting from collections overperformance in Europe, a $10.2 millionweather-related allowance charge on two pool groups containing a large concentration of Puerto Rico-based accounts in the third quarter of 2017, and a $94.0 millionportfolio allowance charge on certain pool groups in Europerecorded in the third quarter of 2016, revenue increased 6% compared to the third quarter of 2016.
- Total operating expenses were
$203 million, compared to $201 millionin the same period of the prior year. Adjusted operating expenses increased 2% to $170 million, compared to $167 millionin the same period of the prior year.
- Total interest expense increased to
$52.8 million, compared to $48.6 millionin the same period of the prior year.
- GAAP net income attributable to Encore was
$28.2 million, or $1.05per fully diluted share, as compared to a loss of $1.5 million, or $0.06per fully diluted share in the same period a year ago. The loss in the third quarter of 2016 was largely due to the portfolio allowance charge on certain pool groups in Europe.
- Adjusted income attributable to Encore was
$30.7 million, compared to $3.6 millionin the third quarter of 2016.
- Adjusted income attributable to Encore per share (also referred to as Economic EPS) was
$1.17, compared to $0.14in the same period of the prior year. In calculating Economic EPS for the third quarter of 2017, 0.5 million shares associated with convertible notes that will not be issued but are reflected in the fully diluted share count were excluded for accounting purposes. In the third quarter of 2016, Economic EPS was not adjusted for shares associated with Encore’s convertible notes.
- Available capacity under Encore’s domestic revolving credit facility, subject to borrowing base and applicable debt covenants, was
$382 millionas of September 30, 2017.
Conference Call and Webcast
Encore will host a conference call and slide presentation today,
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 7495439. 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.
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
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
FINANCIAL TABLES FOLLOW
|ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
|Cash and cash equivalents||$||188,246||$||149,765|
|Investment in receivable portfolios, net||2,728,811||2,382,809|
|Property and equipment, net||71,213||72,257|
|Deferred court costs, net||77,361||65,187|
|Liabilities and equity|
|Accounts payable and accrued liabilities||$||269,927||$||234,398|
|Commitments and contingencies|
|Redeemable noncontrolling interest||160,663||45,755|
|Redeemable equity component of convertible senior notes||77||2,995|
|Convertible preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and outstanding||—||—|
|Common stock, $.01 par value, 50,000 shares authorized, 25,745 shares and 25,593 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively||257||256|
|Additional paid-in capital||43,006||103,392|
|Accumulated other comprehensive loss||(74,153||)||(104,911||)|
|Total Encore Capital Group, Inc. stockholders’ equity||571,309||559,304|
|Total liabilities, redeemable equity and equity||$||4,173,786||$||3,670,497|
The following table includes assets that can only be used to settle the liabilities of the Company’s consolidated variable interest entities (“VIEs”) and the creditors of the VIEs have no recourse to the Company. These assets and liabilities are included in the consolidated statements of financial condition above.
|Cash and cash equivalents||$||77,757||$||55,823|
|Investment in receivable portfolios, net||1,277,384||972,841|
|Property and equipment, net||20,193||19,284|
|Deferred court costs, net||26,089||22,760|
|Accounts payable and accrued liabilities||$||129,010||$||99,689|
|ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
|Three Months Ended
|Revenue from receivable portfolios, net||$||283,588||$||159,534|
|Salaries and employee benefits||77,232||67,783|
|Cost of legal collections||48,094||56,932|
|Other operating expenses||25,859||24,131|
|Collection agency commissions||10,622||8,848|
|General and administrative expenses||32,500||34,871|
|Depreciation and amortization||8,522||8,032|
|Total operating expenses||202,829||200,597|
|Income (loss) from operations||103,870||(21,182||)|
|Other (expense) income|
|Total other expense||(43,882||)||(44,532||)|
|Income (loss) before income taxes||59,988||(65,714||)|
|(Provision) benefit for income taxes||(17,844||)||13,768|
|Net income (loss)||42,144||(51,946||)|
|Net (income) loss attributable to noncontrolling interest||(13,950||)||50,422|
|Net income (loss) attributable to Encore Capital Group, Inc. stockholders||$||28,194||$||(1,524||)|
|Earnings (loss) per share attributable to Encore Capital Group, Inc.:|
|Weighted average shares outstanding:|
|ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
|Nine Months Ended
|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||25,819||26,128|
|Other non-cash expense, net||25,098||28,557|
|Stock-based compensation expense||7,041||9,502|
|Gain on derivative instruments, net||(2,714||)||(10,885||)|
|Deferred income taxes||(5,396||)||(46,524||)|
|(Reversal of) provision for allowances on receivable portfolios, net||(30,525||)||86,777|
|Changes in operating assets and liabilities|
|Deferred court costs and other assets||(20,094||)||7,572|
|Prepaid income tax and income taxes payable||15,565||(2,485||)|
|Accounts payable, accrued liabilities and other liabilities||(9,501||)||(24,146||)|
|Net cash provided by operating activities from continuing operations||81,691||83,172|
|Net cash provided by operating activities from discontinued operations||—||2,096|
|Net cash provided by operating activities||81,691||85,268|
|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||(739,478||)||(712,706||)|
|Collections applied to investment in receivable portfolios, net||549,544||507,552|
|Purchases of property and equipment||(20,518||)||(16,548||)|
|Proceeds from derivative instruments, net||6,140||10,038|
|Net cash used in investing activities from continuing operations||(207,780||)||(106,298||)|
|Net cash provided by investing activities from discontinued operations||—||14,685|
|Net cash used in investing activities||(207,780||)||(91,613||)|
|Payment of loan costs||(19,910||)||(3,750||)|
|Proceeds from credit facilities||928,141||455,786|
|Repayment of credit facilities||(972,453||)||(443,968||)|
|Proceeds from senior secured notes||325,000||—|
|Repayment of senior secured notes||(203,212||)||(14,343||)|
|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||(2,538||)||(4,113||)|
|Proceeds from other debt||8,318||35,080|
|Net cash provided by financing activities||155,309||13,687|
|Net increase in cash and cash equivalents||29,220||7,342|
|Effect of exchange rate changes on cash and cash equivalents||9,261||(3,263||)|
|Cash and cash equivalents, beginning of period||149,765||153,593|
|Cash and cash equivalents, end of period||188,246||157,672|
|ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted Income (Loss) 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 September 30,|
|GAAP net income (loss) attributable to Encore, as reported||$||28,194||$||1.05||$||1.07||$||(1,524||)||$||(0.06||)||$||(0.06||)|
|Convertible notes non-cash interest and issuance cost amortization||3,135||0.12||0.12||2,983||0.12||0.12|
|Acquisition, integration and restructuring related expenses(1)||342||0.01||0.01||3,843||0.15||0.15|
|Settlement fees and related administrative expenses(2)||—||—||—||2,613||0.10||0.10|
|Amortization of certain acquired intangible assets(3)||803||0.03||0.03||529||0.02||0.02|
|Income tax effect of the adjustments(4)||(1,321||)||(0.04||)||(0.04||)||(3,263||)||(0.13||)||(0.13||)|
|Adjustments attributable to noncontrolling interest(5)||(461||)||(0.02||)||(0.02||)||(1,568||)||(0.06||)||(0.06||)|
|Adjusted income attributable to Encore||$||30,692||$||1.15||$||1.17||$||3,613||$||0.14||$||0.14|
(1) Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(2) Amount represents litigation and government settlement fees and related administrative expenses. For the three months ended
(3) As we continue to acquire debt solution service providers around the world, the acquired intangible assets, such as trade names and customer relationships, have grown substantially. These intangible assets are valued at the time of the acquisition and amortized over their estimated lives. We believe that amortization of acquisition-related intangible assets, especially the amortization of an acquired company’s trade names and customer relationships, is the result of pre-acquisition activities. In addition, the amortization of these acquired intangibles is a non-cash static expense that is not affected by operations during any reporting period. As a result, the amortization of certain acquired intangible assets is excluded from our adjusted income from continuing operations attributable to Encore and adjusted income from continuing operations per share.
(4) Amount represents the total income tax effect of the adjustments, which is generally calculated based on the applicable marginal tax rate of the jurisdiction in which the portion of the adjustment occurred.
(5) Certain of the above pre-tax adjustments include expenses recognized by our partially-owned subsidiaries. This adjustment represents the portion of the non-GAAP adjustments that are attributable to noncontrolling interest.
|Three Months Ended
|GAAP total operating expenses, as reported||$||202,829||$||200,597|
|Stock-based compensation expense||(3,531||)||(633||)|
|Operating expenses related to non-portfolio purchasing and recovery business(1)||(28,934||)||(26,446||)|
|Acquisition, integration and restructuring related expenses(2)||(342||)||(3,843||)|
|Settlement fees and related administrative expenses(3)||—||(2,613||)|
|Adjusted operating expenses related to portfolio purchasing and recovery business||$||170,022||$||167,062|
(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 litigation and government settlement fees and related administrative expenses. For the three months ended