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Encore Capital Group Announces First Quarter 2019 Financial Results

  • Encore sets new records for earnings, global cash collections and estimated remaining collections
  • GAAP EPS of $1.57 per share
  • Non-GAAP Economic EPS of $1.46 per share

/EIN News/ -- SAN DIEGO, May 08, 2019 (GLOBE NEWSWIRE) -- Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company, today reported consolidated financial results for the first quarter ended March 31, 2019.

“In the first quarter, Encore’s strong operational and financial performance drove record results for our business,” said Ashish Masih, President and Chief Executive Officer. “Collections growth continues to be driven by our focus on operational innovation and increased productivity, resulting in record global cash collections and a further shift toward our call center and digital collections channel in the U.S.  In addition, global portfolio purchases totaled $262 million in the quarter. We allocated approximately 98% of the capital we deployed in the first quarter to the U.S. and the U.K. debt purchasing markets, where we have scale advantages, leadership positions and the opportunity to earn the highest risk-adjusted returns relative to other markets.  Our solid performance drove record earnings for the quarter and a new all-time high for global estimated remaining collections at $7.3 billion.”

“In Europe, Cabot continues to grow collections, revenues and earnings as the U.K.’s market leader in debt purchasing. Cabot is also a U.K. market leader in capital-light agency debt collections and business process outsourcing for the credit management services industry. Credit issuers in the U.K. and in Europe are looking to increasingly outsource their credit management responsibilities. As a result, Cabot is particularly well-positioned to benefit from its broad and deep credit management product offering.”

“Looking forward, consumer indebtedness in both the U.S. and the U.K. has recently reached new record levels, a strong indication of future increases in charge-offs and supply growth in our two most important markets,” said Masih.

Key Financial Metrics for the First Quarter of 2019:

  • Estimated remaining collections (ERC) increased $199 million compared to the end of the same period of the prior year, to a record $7.3 billion.

  • Portfolio purchases were $262 million, including $174 million in the U.S. and $84 million in Europe, compared to $277 million deployed overall in the same period a year ago.

  • Gross collections increased 5% to a record $514 million, compared to $489 million in the same period of the prior year.

  • Total revenues, adjusted by net allowances, increased 6% to $347 million, compared to $327 million in the first quarter of 2018.

  • Total operating expenses were $236 million, compared to $238 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 $187 million, compared to $188 million in the same period of the prior year.

  • Total interest expense decreased to $55.0 million, compared to $57.5 million in the same period of the prior year, principally as a result of our purchase of all previously outstanding Cabot-related Preferred Equity Certificates (PECs), partially offset by expenses relating to higher interest rates and higher balances on revolving credit facilities.

  • GAAP net income attributable to Encore was $49.3 million, or $1.57 per fully diluted share, compared to $21.8 million, or $0.83 per fully diluted share in the first quarter of 2018.

  • Adjusted net income attributable to Encore was $45.9 million, or $1.46 per fully diluted share, compared to $25.8 million, or $0.98 per fully diluted share in the first quarter of 2018.

  • As of March 31, 2019, after taking into account borrowing base and applicable debt covenants, available capacity under Encore’s U.S. revolving credit facility, was $138.8 million and availability under Cabot’s revolving credit facility was £139.8 million (approximately $182.2 million).

Conference Call and Webcast

Encore will host a conference call and slide presentation today, May 8, 2019, at 2:00 p.m. Pacific / 5:00 p.m. Eastern time, to present and discuss first 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 number 3289575. 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 


FINANCIAL TABLES FOLLOW


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

  March 31,
2019
  December 31,
2018
Assets      
Cash and cash equivalents $ 167,096     $ 157,418  
Investment in receivable portfolios, net 3,211,587     3,137,893  
Deferred court costs, net 96,207     95,918  
Property and equipment, net 117,371     115,518  
Other assets 338,462     257,002  
Goodwill 882,884     868,126  
Total assets $ 4,813,607     $ 4,631,875  
Liabilities and Equity      
Liabilities:      
Accounts payable and accrued liabilities $ 195,686     $ 287,945  
Debt, net 3,592,906     3,490,633  
Other liabilities 150,458     33,609  
Total liabilities 3,939,050     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, 50,000 shares authorized, 30,967 shares and 30,884 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively 310     309  
Additional paid-in capital 208,374     208,498  
Accumulated earnings 769,443     720,189  
Accumulated other comprehensive loss (105,864 )   (110,987 )
Total Encore Capital Group, Inc. stockholders’ equity 872,263     818,009  
Noncontrolling interest 2,294     1,679  
Total equity 874,557     819,688  
Total liabilities and equity $ 4,813,607     $ 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.


  March 31,
2019
  December 31,
2018
Assets      
Cash and cash equivalents $ 53     $ 448  
Investment in receivable portfolios, net 521,971     501,489  
Other assets 10,367     9,563  
Liabilities      
Accounts payable and accrued liabilities $ 4,661     $ 4,556  
Debt, net 456,204     445,837  
Other liabilities 46     46  


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

  Three Months Ended
March 31,
  2019   2018
Revenues      
Revenue from receivable portfolios $ 311,158     $ 281,009  
Other revenues 34,552     35,968  
Total revenues 345,710     316,977  
Allowance reversals on receivable portfolios, net 1,367     9,811  
Total revenues, adjusted by net allowances 347,077     326,788  
Operating expenses      
Salaries and employee benefits 91,834     89,259  
Cost of legal collections 49,027     53,855  
Other operating expenses 29,614     33,748  
Collection agency commissions 16,002     11,754  
General and administrative expenses 39,547     39,284  
Depreciation and amortization 9,995     10,436  
Total operating expenses 236,019     238,336  
Income from operations 111,058     88,452  
Other (expense) income      
Interest expense (54,967 )   (57,462 )
Other (expense) income (2,976 )   2,193  
Total other expense (57,943 )   (55,269 )
Income from operations before income taxes 53,115     33,183  
Provision for income taxes (3,673 )   (9,470 )
Net income 49,442     23,713  
Net income attributable to noncontrolling interest (188 )   (1,886 )
Net income attributable to Encore Capital Group, Inc. stockholders $ 49,254     $ 21,827  
       
Earnings per share attributable to Encore Capital Group, Inc.:      
Basic $ 1.58     $ 0.84  
Diluted $ 1.57     $ 0.83  
       
Weighted average shares outstanding:      
Basic 31,201     26,056  
Diluted 31,359     26,416  


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

  Three Months Ended
March 31,
  2019   2018
Operating activities:      
Net income $ 49,442     $ 23,713  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 9,995     10,436  
Other non-cash interest expense, net 6,629     11,597  
Stock-based compensation expense 1,826     2,276  
Deferred income taxes 19,682     5,071  
Allowance reversals on receivable portfolios, net (1,367 )   (9,811 )
Other, net 4,081     1,342  
Changes in operating assets and liabilities      
Deferred court costs and other assets 18,725     (5,811 )
Prepaid income tax and income taxes payable (30,247 )   (2,245 )
Accounts payable, accrued liabilities and other liabilities (67,775 )   (35,539 )
Net cash provided by operating activities 10,991     1,029  
Investing activities:      
Purchases of receivable portfolios, net of put-backs (258,635 )   (280,909 )
Collections applied to investment in receivable portfolios, net 201,328     206,402  
Purchases of property and equipment (10,227 )   (11,220 )
Other, net (1,980 )   1,239  
Net cash used in investing activities (69,514 )   (84,488 )
Financing activities:      
Proceeds from credit facilities 196,263     177,449  
Repayment of credit facilities (119,854 )   (87,356 )
Taxes paid related to net share settlement of equity awards (1,950 )   (2,571 )
Other, net (2,912 )   (2,884 )
Net cash provided by financing activities 71,547     84,638  
Net increase in cash and cash equivalents 13,024     1,179  
Effect of exchange rate changes on cash and cash equivalents (3,346 )   3,820  
Cash and cash equivalents, beginning of period 157,418     212,139  
Cash and cash equivalents, end of period $ 167,096     $ 217,138  


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 March 31,
  2019   2018
  $   Per Diluted
Share—
Accounting
and
Economic
  $   Per Diluted
Share—
Accounting
and
Economic
GAAP net income attributable to Encore, as reported $ 49,254     $ 1.57     $ 21,827     $ 0.83  
Adjustments:              
Convertible notes and exchangeable notes non-cash interest and issuance cost amortization 4,002     0.13     3,035     0.12  
Amortization of certain acquired intangible assets(1) 1,877     0.06     2,068     0.08  
Acquisition, integration and restructuring related expenses(2) 1,208     0.04     572     0.02  
Net gain on fair value adjustments to contingent consideration(3)         (2,274 )   (0.09 )
Expenses related to withdrawn Cabot IPO(4)         2,984     0.11  
Adjustments attributable to noncontrolling interest(5)         (1,558 )   (0.06 )
Income tax effect of above non-GAAP adjustments and certain discrete tax items(6) (1,383 )   (0.05 )   (810 )   (0.03 )
Change in tax accounting method(7) (9,070 )   (0.29 )        
Adjusted net income attributable to Encore $ 45,888     $ 1.46     $ 25,844     $ 0.98  

________________________

  1. 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.
  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 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 CCM. 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. 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.
  7. Amount represents the benefit from the tax accounting method change related to revenue reporting. We adjust for certain discrete tax items that are not indicative of our ongoing operations.
  Three Months Ended
March 31,
2019   2018
GAAP total operating expenses, as reported $ 236,019     $ 238,336  
Adjustments:      
Operating expenses related to non-portfolio purchasing and recovery business(1) (46,082 )   (46,614 )
Acquisition, integration and restructuring related expenses(2) (1,208 )   (572 )
Stock-based compensation expense (1,826 )   (2,276 )
Gain on fair value adjustments to contingent consideration(3)     2,274  
Expenses related to withdrawn Cabot IPO(4)     (2,984 )
Adjusted operating expenses related to portfolio purchasing and recovery business $ 186,903     $ 188,164  

________________________

  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.
  4. Amount represents expenses related to the proposed and later withdrawn initial public offering by CCM. 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.

 

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