Encore Capital Group Announces Second Quarter Financial Results

- Collections Rise 16% to $278 Million - GAAP EPS of $0.44 per Fully Diluted Share - EPS of $0.85 per Fully Diluted Share After One-Time and Non-Cash Adjustments - Asset Acceptance Transaction Closes - Cabot Acquisition Accelerates Growth Trajectory and Solidifies Global Leadership Position

Company Release - 08/08/2013 16:01

SAN DIEGO, Aug. 8, 2013 /PRNewswire/ -- Encore Capital Group, Inc. (Nasdaq: ECPG), a leading provider of debt management and recovery solutions for consumers and property owners across a broad range of assets, today reported consolidated financial results for the second quarter ended June 30, 2013.

"For the quarter, we delivered strong financial results, while making strategic investments designed to build a global platform for continued growth," said Ken Vecchione, Encore's President and Chief Executive Officer. "We saw solid growth in collections and revenue and continued to reduce our cost to collect."

"During the quarter, we successfully closed our acquisition of Asset Acceptance," Vecchione said. "This allowed us to secure a significant portion of our 2013 portfolio purchasing goal at an attractive return and accelerate the rollout of our Internal Legal platform. We expect our combined organization to be operating at Encore's lower cost-to-collect within the next three to four quarters. The acquisition of Asset Acceptance increased Encores Estimated Remaining Collections ("ERC") by almost $1 billion, to more than $2.7 billion as of June 30, 2013."

"The July 1, 2013 acquisition of a controlling interest in Cabot Credit Management ("Cabot"), a leader in the UK debt recovery market, represents a major milestone for Encore as the Company entered the UK market for the first time," Vecchione continued. "Together, these activities accelerate our growth trajectory, making Encore a global leader in the consumer debt purchase and recovery industry." The acquisition of the controlling interest in Cabot increased Encore's ERC to more than $3.3 billion after deducting the ERC attributable to the minority interest.

During the quarter, the Company completed the placement of $150 million in convertible notes, and in July 2013, the initial purchasers exercised, in full, their option to purchase an additional $22.5 million in convertible notes. "We were able to raise long-term capital on very attractive terms, a 3% cash coupon, a 7-year term and a 30% conversion premium," said Paul Grinberg, the Company's Executive Vice President and Chief Financial Officer. "As a result of strong demand, we were able to upsize the transaction from $110 million. The market's recognition of Encore's success builds the foundation for our next stages of growth." In connection with the convertible note offering, the Company entered into capped call transactions, which will ensure that there is no economic dilution from the offering until Encore's share price reaches $61.52.

Second Quarter of 2013 Highlights:

• Gross collections from the portfolio purchasing and recovery business were $278.4 million, a 16% increase over the $240.6 million in the same period of the prior year.
• Investment in receivable portfolios was $423.1 million, which included the acquisition of Asset Acceptance's receivable portfolios, to purchase $68.9 billion in face value of debt, compared to $231.0 million, to purchase $6.0 billion in face value of debt in the same period of the prior year.
• Propel Financial Services deployed $60.3 million in the quarter, $19.8 million of which were in the origination of tax lien transfers and $40.5 million of which were in the acquisition of tax lien certificates. Propel now operates in four states, in addition to the state of Texas.
• Available capacity under the Company's revolving credit facility, subject to borrowing base and applicable debt covenants, was $167.9 million as of June 30, 2013. Total debt, consisting of the revolving credit facility, senior secured convertible notes, and capital lease obligations, was $1.1 billion as of June 30, 2013, compared with $706.0 million as of December 31, 2012. Cash and cash equivalents were $222.2 million as of June 30, 2013, compared with $17.5 million as of December 31, 2012.
• Revenue from receivable portfolios was $152.0 million, a 10% increase over the $138.7 million in the same period of the prior year. Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of net portfolio allowances, decreased to approximately 53.3% from 57.2% in the same period of the prior year.
• Total operating expenses were $126.2 million, a 23% increase over the $102.8 million in the same period of the prior year. Adjusted Operating Expenses (defined as operating expenses excluding stock-based compensation expense, tax lien business segment operating expenses, one-time charges, and acquisition and integration related operating expenses of $18.1 million) per dollar collected, decreased to 38.8% compared to 39.5% in the same period of the prior year.
• Adjusted EBITDA (defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expenses, portfolio amortization, one-time charges, and acquisition related expenses) was $177.2 million, a 20% increase over the $147.9 million in the same period of the prior year.
• Total interest expense increased to $7.5 million, as compared to $6.5 million in the same period of the prior year.
• Net income from continuing operations was $11.0 million, or $0.44 per fully diluted share, compared to income from continuing operations of $19.0 million, or $0.74 per fully diluted share in the same period of the prior year. Adjusted Income from Continuing Operations per Share (defined as income from continuing operations excluding non-cash interest and issuance cost amortization relating to our convertible notes, and one-time legal, advisory, consulting, acquisition, hedging, and integration related expenses, all net of tax) per fully diluted share, was $0.85.
• Total stockholders' equity per share was $20.53 at the end of the quarter, a 31% increase over $15.71 at December 31, 2012.

Additional information:

Certain events affected the comparability of 2013 versus 2012 quarterly results, as outlined below. For a more detailed comparison of 2013 versus 2012 results, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.

• In the second quarter of 2013, the Company incurred certain one-time and non-cash costs in the amount of $16.9 million, including:
  • Legal and advisory fees related to the acquisition of a controlling interest in Cabot of $3.1 million;
  • Costs of hedging the British Pound Sterling, relating to the acquisition of a controlling interest in Cabot of $3.6 million;
  • Legal, advisory, integration and consulting fees, and severance costs related to the acquisition of Asset Acceptance of $9.0 million; and
  • Convertible notes non-cash interest and issuance cost amortization of $880,000.

Conference Call and Webcast

The Company will hold a conference call and slide presentation today at 2:00 p.m. Pacific time / 5:00 p.m. Eastern time to discuss second quarter 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 (877) 670-9781 or (631) 456-4378. 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 17331672. 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 information concerning Adjusted EBITDA because management utilizes this information, which is materially similar to a financial measure contained in covenants used in the Company's revolving credit facility, in the evaluation of its operations and believes that this measure is a useful indicator of the Company's ability to generate cash collections in excess of operating expenses through the liquidation of its receivable portfolios. 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. The Company has included Adjusted Income from Continuing Operations per Share because management believes that investors regularly rely on this measure to assess operating performance, in order highlight trends in the Company's business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. Adjusted EBITDA, Adjusted Operating Expenses and Adjusted Income from Continuing Operations per Share 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 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 a leading provider of debt management and recovery solutions for consumers and property owners across a broad range of assets. Through its subsidiaries, the Company purchases portfolios of consumer receivables from major banks, credit unions, and utility providers, and partners with individuals as they repay their obligations and work toward financial recovery. Through its Propel Financial Services, LLC subsidiary, the Company assists property owners who are delinquent on their property taxes by structuring affordable monthly payment plans, and purchases delinquent tax liens directly from select taxing authorities. Through its Cabot Credit Management subsidiary in the United Kingdom, the Company is a market-leading acquirer and manager of consumer debt in the United Kingdom and Ireland. Encore's success and future growth are driven by its sophisticated and widespread use of analytics, its broad investments in data and behavioral science, the significant cost advantages provided by its highly-efficient operating model and proven investment strategy, and the Company's demonstrated commitment to conducting business ethically and in ways that support its consumers' financial recovery.

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 SmallCap 600, and the Wilshire 4500. More information about the Company can be found at www.encorecapital.com.

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 "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, 10-Q and 8-K, each as it may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements.

Contact:

Encore Capital Group, Inc.

Paul Grinberg (858) 309-6904
paul.grinberg@encorecapital.com

Adam Sragovicz (858) 309-9509
adam.sragovicz@encorecapital.com

SOURCE Encore Capital Group, Inc.