SAN DIEGO — (BUSINESS WIRE)—May 4, 2004 —Encore Capital Group, Inc. (Nasdaq: ECPG), a leading accounts receivable management firm, today reported consolidated financial results for the first quarter ended March 31, 2004.
“Encore turned in another strong performance during the first quarter ” said Carl C. Gregory, III, President and CEO of Encore Capital Group, Inc. “Importantly, this growth has been led by improving productivity, as seen by the 17% growth in monthly average of gross collections per average employee to $29,282 in the first quarter of 2004 from $25,001 in the first quarter of 2003.
“ In addition, we also diversified our purchasing. 52% of the first quarter of 2004 purchases were in the alternative paper category. This not only improved the potential return on these portfolios as they were purchased with our own funds, but also enabled us to make purchases that were more attractive than many credit card opportunities.”
Mr. Gregory added, “In our industry, the first quarter is usually the year’s best in terms of collections. It appears that debtors try to resolve past issues at the start of a new year when they can use their tax refunds as a source of debt repayment. Our challenge is to maintain this momentum throughout the year. “
Revenue from receivable portfolios recognized as a percentage of collections was 68% in the first quarter of 2004 compared to 64% in the first quarter of 2003. When revenue and collections from the retained interest and servicing portfolios are included, revenue recognized as a percentage of collections was 66% in the first quarter of 2004 compared to 60% in the first quarter of 2003.
Total operating expenses were $23.3 million, an increase of 34% or $5.9 million over the $17.4 million in the first quarter of 2003. Total expenses as a percentage of gross collections declined slightly from 37% in the first quarter of 2003 to 36% in the 2004 quarter.
Cash flow from operations grew 76% or $3.5 million, to $8.2 million in the 2004 quarter from $4.7 million in the 2003 quarter. Cash flow as a percentage of gross collections also grew to 13% in the first quarter of 2004 compared with 10% in the 2003 quarter.
The Company spent $17.2 million to purchase approximately $786.4 million in face value of portfolios during the first quarter of 2004, a blended purchase price of 2.19% of face value. The Company spent $18.8 million to purchase approximately $589.4 million in face value of portfolios during the first quarter of 2003, a blended purchase price of 3.19% of face value.
Commenting on the outlook for the Company, Mr. Gregory said, “Although the first quarter’s pace of collections was quite impressive, we recognize that the year will be full of challenges and requires constant attention to the fundamentals that have contributed to our success to date. Our improved performance has been driven by disciplined portfolio purchases based on our proprietary modeling, effective collection efforts through multiple channels, and prudently scaling our business to service the volume of receivables that we own. We believe that continued execution on these core strategies will continue to create additional value for our stockholders”
The table included in the attached supplemental financial information is a reconciliation of generally accepted accounting principles in the United States of America (“GAAP”) income before taxes, net income, and fully diluted earnings per share to income before taxes, net income, and fully diluted earnings per share, excluding one-time benefits for the periods presented. We believe that these non-GAAP financial measures provide useful information to investors about our results of operations because the elimination of one-time benefits that are included in the GAAP financial measures results in a normalized comparison of certain key financial results between the periods presented.
Conference Call and Webcast
The Company will hold a conference call today at 2:00 PM Pacific time / 5:00 P.M. Eastern time to discuss the first quarter results. Members of the public are invited to listen to the live conference call via the Internet. To hear the presentation and to access a slide presentation containing financial information that will be discussed in the conference call, log on at the Investor Relations page of the Company’s web site atwww.encorecapitalgroup.com.For those who cannot listen to the live broadcast, a replay of the conference call will be available shortly after the call at the same location.
About Encore Capital Group, Inc.
Encore Capital Group, Inc. is an accounts receivable management firm that specializes in purchasing charged-off and defaulted consumer debt.
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,” “believes,” “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, projections of revenues, income or loss; estimates of capital expenditures; plans for future operations, products or services; and financing needs or plans, as well as assumptions relating to those matters. 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 our subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could affect the Company’s results and cause them to materially differ from those contained in the forward-looking statements include: the Company’s ability to purchase receivables portfolios on acceptable terms and in sufficient quantities; the availability and cost of financing; the Company’s ability to recover sufficient amounts on or with respect to receivables to fund operations; the Company’s continued servicing of receivables in its third party financing transactions; the Company’s ability to hire and retain qualified personnel to recover on its receivables efficiently; changes in, or failure to comply with, government regulations; the costs, uncertainties and other effects of legal and administrative proceedings; and risk factors and cautionary statements made in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2003.
Forward-looking statements speak only as of the date the statement was made. They are inherently subject to risks and uncertainties, some of which the Company cannot predict or quantify. Future events and actual results could differ materially from the forward-looking statements. The Company will not undertake and specifically declines any obligation to publicly release the result of any revisions to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, whether as the result of new information, future events or for any other reason. In addition, it is the Company’s policy generally not to make any specific projections as to future earnings, and the Company does not endorse any projections regarding future performance that may be made by third parties.
CONTACT:
Encore Capital Group, Inc. (Shareholders/Analysts)
Carl C. Gregory, III, 858-309-6961
carl.gregory@encorecapitalgroup.com
or
Financial Relations Board (Press)
Tony Rossi, 310-407-6563 (Investor Relations)
trossi@financialrelationsboard.com
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
| March 31, 2004 (Unaudited) | December 31, 2003 (A) | |||||||
|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||
| Cash and cash equivalents | $ | 36,803 | $ | 38,612 | ||||
| Restricted cash | 5,367 | 842 | ||||||
| Investment in receivable portfolios, net | 86,208 | 89,136 | ||||||
| Investment in retained interest | 72 | 1,231 | ||||||
| Property and equipment, net | 2,844 | 2,786 | ||||||
| Deferred tax assets, net | 5,089 | 1,358 | ||||||
| Other assets | 4,527 | 4,320 | ||||||
| Total assets | $ | 140,910 | $ | 138,285 | ||||
| Liabilities and stockholders' equity | ||||||||
| Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 12,735 | $ | 11,644 | ||||
| Accrued profit sharing arrangement | 15,586 | 12,749 | ||||||
| Income tax payable | 6,849 | 883 | ||||||
| Notes payable and other borrowings | 27,656 | 41,178 | ||||||
| Capital lease obligations | 394 | 460 | ||||||
| Total liabilities | 63,220 | 66,914 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity | ||||||||
| Preferred stock, $.01 par value, 5,000 shares | ||||||||
| authorized, and no shares issued and outstanding | – | – | ||||||
| Common stock, $.01 par value, 50,000 shares | ||||||||
| authorized, 22,044 shares and 22,003 shares | ||||||||
| issued and outstanding as of March 31, 2004 | ||||||||
| and December 31, 2003, respectively | 220 | 220 | ||||||
| Additional paid-in capital | 65,711 | 65,387 | ||||||
| Accumulated earnings | 11,674 | 5,658 | ||||||
| Accumulated other comprehensive income | 85 | 106 | ||||||
| Total stockholders' equity | 77,690 | 71,371 | ||||||
| Total liabilities and stockholders' equity | $ | 140,910 | $ | 138,285 | ||||
(A) Derived from the audited consolidated financial statements as of December 31, 2003
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
| Three Months Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Revenues | ||||||||
| Revenue from receivable portfolios | $ | 42,075 | $ | 27,256 | ||||
| Revenue from retained interest | 16 | 128 | ||||||
| Servicing fees and other related income | 296 | 739 | ||||||
| Total revenues | 42,387 | 28,123 | ||||||
| Operating expenses | ||||||||
| Salaries and employee benefits | 11,624 | 9,647 | ||||||
| Other operating expenses | 4,094 | 2,377 | ||||||
| Cost of legal collections | 5,502 | 3,357 | ||||||
| General and administrative expense | 1,653 | 1,474 | ||||||
| Depreciation and amortization | 443 | 536 | ||||||
| Total operating expenses | 23,316 | 17,391 | ||||||
| Income before other income (expense) | ||||||||
| and income taxes | 19,071 | 10,732 | ||||||
| Other income (expense) | ||||||||
| Interest expense | (9,282 | ) | (4,410 | ) | ||||
| Other income | 155 | 7,274 | ||||||
| Total other income (expense) | (9,127 | ) | 2,864 | |||||
| Income before income taxes | 9,944 | 13,596 | ||||||
| Provision for income taxes | (3,928 | ) | (5,430 | ) | ||||
| Net income | 6,016 | 8,166 | ||||||
| Preferred Stock Dividends | – | (125 | ) | |||||
| Net income available to common stockholders | $ | 6,016 | $ | 8,041 | ||||
| Weighted average shares outstanding | 22,020 | 7,411 | ||||||
| Incremental shares from assumed conversion of | ||||||||
| warrants, options, and preferred stock | 1,423 | 11,270 | ||||||
| Adjusted weighted average share outstanding | 23,443 | 18,681 | ||||||
| Earnings per share - Basic | $ | 0.27 | $ | 1.09 | ||||
| Earnings per share - Diluted | $ | 0.26 | $ | 0.44 | ||||
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
| Three Months Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Operating activities | ||||||||
| Gross collections | $ | 63,996 | $ | 47,083 | ||||
| Less: | ||||||||
| Amounts collected on behalf of third parties | (962 | ) | (1,968 | ) | ||||
| Amounts applied to principal on receivable portfolios | (19,820 | ) | (15,132 | ) | ||||
| Amounts applied to principal of securitization 98-1 | (1,123 | ) | (2,598 | ) | ||||
| Servicing fees | 296 | 739 | ||||||
| Operating expenses | ||||||||
| Salaries and employee benefits | (12,705 | ) | (10,786 | ) | ||||
| Other operating expenses | (2,328 | ) | (2,887 | ) | ||||
| Cost of legal collections | (5,502 | ) | (3,357 | ) | ||||
| General and administrative | (1,583 | ) | (1,046 | ) | ||||
| Interest payments | (538 | ) | (876 | ) | ||||
| Contingent interest payments | (5,793 | ) | (3,391 | ) | ||||
| Other income and expense | 190 | 64 | ||||||
| Increase in restricted cash | (4,525 | ) | (643 | ) | ||||
| Income taxes | (1,410 | ) | (538 | ) | ||||
| Net cash provided by operating activities | 8,193 | 4,664 | ||||||
| Investing activities | ||||||||
| Purchases of receivable portfolios | (17,248 | ) | (18,803 | ) | ||||
| Collections applied to principal of receivable portfolios | 19,820 | 15,132 | ||||||
| Collections applied to principal of securitization 98-1 | 1,123 | 2,598 | ||||||
| Proceeds from put-backs of receivable portfolios | 356 | 255 | ||||||
| Purchases of property and equipment | (502 | ) | (417 | ) | ||||
| Net cash provided by (used in) investing activities | 3,549 | (1,235 | ) | |||||
| Financing activities | ||||||||
| Proceeds from notes payable and other borrowings | 6,952 | 16,922 | ||||||
| Repayment of notes payable and other borrowings | (20,474 | ) | (18,718 | ) | ||||
| Proceeds from exercise of common stock options | 36 | – | ||||||
| Payment of preferred dividend | – | (250 | ) | |||||
| Repayment of capital lease obligations | (65 | ) | (69 | ) | ||||
| Net cash used in financing activities | (13,551 | ) | (2,115 | ) | ||||
| Net increase (decrease) in cash | (1,809 | ) | 1,314 | |||||
| Cash, beginning of period | 38,612 | 752 | ||||||
| Cash, end of period | $ | 36,803 | $ | 2,066 | ||||
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows (cont.)
Reconciliation of Net Income to Net Cash Provided by Operating Activities
(Unaudited, In Thousands)
| Three Months Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Net income | $ | 6,016 | $ | 8,166 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation and amortization | 443 | 536 | ||||||
| Amortization of loan costs and debt discount | 11 | 122 | ||||||
| Tax benefits from stock option exercises | 261 | – | ||||||
| Amortization of stock based compensation | 27 | – | ||||||
| Deferred income tax expense (benefit) | (3,716 | ) | 4,982 | |||||
| Changes in operating assets and liabilities | ||||||||
| Increase in restricted cash | (4,525 | ) | (643 | ) | ||||
| Increase in other assets | (219 | ) | (10,793 | ) | ||||
| Increase (decrease) in accrued profit sharing arrangement | 2,837 | (51 | ) | |||||
| Increase in accounts payable and accrued liabilities | 7,058 | 2,345 | ||||||
| Net cash provided by operating activities | $ | 8,193 | $ | 4,664 | ||||
ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited, In Thousands)
| Accumulated | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Additional | Other | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Comprehensive | |||||||||||||||||
| Shares | Par | Capital | Earnings | Income | Total | |||||||||||||||
| Balances at December 31, 2003 | 22,003 | $ | 220 | $ | 65,387 | $ | 5,658 | $ | 106 | $ | 71,371 | |||||||||
| Net income | – | – | – | 6,016 | – | 6,016 | ||||||||||||||
| Other comprehensive income - unrealized gain on | ||||||||||||||||||||
| non-qualified deferred compensation plan assets | – | – | – | – | 15 | 15 | ||||||||||||||
| Other comprehensive loss - decrease in unrealized gain | ||||||||||||||||||||
| on investment in retained interest, net of tax | – | – | – | – | (36 | ) | (36 | ) | ||||||||||||
| Comprehensive income | 5,995 | |||||||||||||||||||
| Exercise of stock options | 41 | – | 36 | – | – | 36 | ||||||||||||||
| Tax benefits related to stock option exercises | – | – | 261 | – | – | 261 | ||||||||||||||
| Amortization of stock options issued at below market | – | – | 27 | – | – | 27 | ||||||||||||||
| Balances at March 31, 2004 | 22,044 | $ | 220 | $ | 65,711 | $ | 11,674 | $ | 85 | $ | 77,690 | |||||||||
Encore Capital Group, Inc.
Supplemental Financial Information Reconciliation of GAAP Income Before Taxes, Net Income, and Fully Diluted Earnings Per
Share to Income Before Taxes, Net Income, and Fully Diluted Earnings Per Share
Excluding One-Time Benefits and Other Charges
For the Quarters Ended March 31, 2004 and 2003
($ in thousands, except per share amounts)
| For the Quarter Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Income Before Taxes | ||||||||
| GAAP, as reported | $ | 9,944 | $ | 13,596 | ||||
| Gain on settlement of litigation | – | (7,210 | ) | |||||
| Income before taxes, excluding | ||||||||
| one-time benefit | $ | 9,944 | $ | 6,386 | ||||
| Percentage increase over prior period | 55.7 | % | ||||||
| Net Income | ||||||||
| GAAP, as reported | $ | 6,016 | $ | 8,166 | ||||
| Gain on settlement of litigation | – | (4,376 | ) | |||||
| Net income, excluding | ||||||||
| one-time benefit | $ | 6,016 | $ | 3,790 | ||||
| Percentage increase over prior period | 58.7 | % | ||||||
| Fully Diluted Earnings Per Share | ||||||||
| Earnings per Share: | ||||||||
| GAAP, as reported | $ | 0.26 | $ | 0.44 | ||||
| Gain on settlement of litigation | – | (0.24 | ) | |||||
| Fully diluted earnings per share, | ||||||||
| excluding one-time benefit | $ | 0.26 | $ | 0.20 | ||||
| Percentage increase over prior period | 30.0 | % | ||||||
