Exhibit 99.1
For Immediate Release
Encore Capital Group Announces Fourth Quarter and Full Year 2008 Results
SAN DIEGO, February 11, 2009 /PRNewswire-FirstCall/ — Encore Capital Group, Inc. (Nasdaq: ECPG), a leading distressed consumer debt management company, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2008.
For the fourth quarter of 2008:
• | Gross collections were $94.4 million, a 10% increase over the $85.4 million in the same period of the prior year. |
• | Investment in receivable portfolios was $63.8 million, to purchase $1.7 billion in face value of debt, compared to $74.6 million, to purchase $1.8 billion in face value of debt in the same period of the prior year. Available capacity under the revolving credit facility, subject to borrowing base and applicable debt covenants, was $97.0 million as of December 31, 2008, compared to $57.8 million as of December 31, 2007. |
• | Revenue from receivable portfolios was $47.9 million, a 14% decrease from $55.8 million in the same period of the prior year. Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of impairment provisions, was 78%, compared to 76% in the same period of the prior year. |
• | Revenue from bankruptcy servicing was $4.0 million, a 39% increase over the $2.9 million in the same period of the prior year. |
• | Total operating expenses were $54.2 million, a 14% increase over the $47.4 million in the same period of the prior year. Operating expense (excluding stock-based compensation expense and bankruptcy servicing operating expenses) per dollar collected increased to 53.6% compared to 50.7% in the same period of the prior year. |
• | Adjusted EBITDA, defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expense and portfolio amortization, was $51.9 million, a 19% increase over the $43.5 million in the same period of the prior year. |
• | Total interest expense was $4.2 million, compared to $4.0 million in the same period of the prior year. |
• | Net income was $0.2 million or $0.01 per fully diluted share, compared to net income of $4.8 million or $0.21 per fully diluted share in the same period of the prior year. |
For the full year of 2008:
• | Gross collections were $398.6 million, a 12% increase over the $355.2 million in 2007. |
• | Total revenue was $255.9 million, a 1% increase over the $254.0 million in 2007. |
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• | Adjusted EBITDA was $211.3 million, a 21% increase over the $174.2 million in 2007. |
• | Net income was $18.8 million or $0.80 per fully diluted share, compared to net income of $15.0 million or $0.64 per fully diluted share in 2007. |
Additional information:
Certain events affected the comparability of 2008 versus 2007 quarterly and annual results, as outlined below. For a more detailed comparison of 2008 versus 2007 results, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
• | In the fourth quarter of 2008, the Company recorded a net impairment provision of $25.4 million, compared to a net impairment provision of $8.7 million in the same period of the prior year. For the full year of 2008, the Company recorded a net impairment provision of $41.4 million, compared to a net impairment provision of $11.2 million in the prior year. |
• | In the fourth quarter of 2008, the Company expensed $12.1 million in upfront court costs, compared to $6.5 million in the same period of the prior year. For the full year of 2008, the Company expensed $38.5 million in upfront court costs, compared to $28.3 million in the prior year. |
• | In the fourth quarter of 2008, the Company repurchased $23.6 million principal amount of its outstanding convertible senior notes, for a total price of $16.6 million, plus accrued interest. These repurchases resulted in a net gain of $6.7 million. For the full year of 2008, the Company repurchased $28.6 million principal amount of its outstanding convertible senior notes, for a total price of $20.1 million, plus accrued interest. These repurchases resulted in a net gain of $8.1 million. |
• | For the full year of 2008, the Company recorded an income tax provision of $13.0 million, reflecting an effective tax rate of 40.8%, compared to an income tax provision of $8.4 million, reflecting an effective tax rate of 35.9% in the prior year. This increase was primarily due to a net state effective tax rate increase in 2008 and to one-time state related tax benefits experienced in 2007. |
• | In the second quarter of 2007, approximately $11.7 million of total interest expense was attributable to the agreement reached with the Company’s previous lender to pay off all future contingent interest payments. |
Non-GAAP Financial Measures
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 credit agreement, 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 total operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods
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presented. 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 Encore Capital Group’s operating performance. Neither Adjusted EBITDA nor operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses has been prepared in accordance with generally accepted accounting principles (GAAP). These non-GAAP financial measures, as presented by Encore Capital Group, may not be comparable to similarly titled measures reported by other companies. The Company has included a reconciliation of Adjusted EBITDA to reported earnings under GAAP, and a reconciliation of operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses to the GAAP measure total operating expenses in the attached financial tables.
About Encore Capital Group, Inc.
Encore Capital Group, Inc. is a systems-driven purchaser and manager of charged-off consumer receivables portfolios. More information on the company can be found at www.encorecapitalgroup.com.
Contact:
Encore Capital Group, Inc.
Paul Grinberg (858) 309-6904
paul.grinberg@encorecapitalgroup.com
or
Ren Zamora (858) 560-3598
ren.zamora@encorecapitalgroup.com
FINANCIAL TABLES FOLLOW
Encore Capital Group, Inc.
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ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
December 31, 2008 | December 31, 2007 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 10,341 | $ | 8,676 | ||||
Accounts receivable, net | 1,757 | 4,136 | ||||||
Investment in receivable portfolios, net | 461,346 | 392,209 | ||||||
Deferred court costs | 28,335 | 20,533 | ||||||
Property and equipment, net | 6,272 | 4,390 | ||||||
Prepaid income tax | 7,935 | 10,346 | ||||||
Forward flow asset | 10,302 | 15,863 | ||||||
Other assets | 5,286 | 8,800 | ||||||
Goodwill | 15,985 | 15,985 | ||||||
Identifiable intangible assets, net | 1,739 | 2,557 | ||||||
Total assets | $ | 549,298 | $ | 483,495 | ||||
Liabilities and stockholders’ equity | ||||||||
Liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 18,204 | $ | 20,346 | ||||
Deferred tax liabilities, net | 15,199 | 13,669 | ||||||
Deferred revenue and purchased servicing obligation | 5,203 | 3,898 | ||||||
Debt | 311,319 | 272,420 | ||||||
Other liabilities | 3,483 | 1,642 | ||||||
Total liabilities | 353,408 | 311,975 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Convertible preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and outstanding | — | — | ||||||
Common stock, $.01 par value, 50,000 shares authorized, 23,053 shares and 22,992 shares issued and outstanding as of December 31, 2008 and 2007, respectively | 231 | 230 | ||||||
Additional paid-in capital | 79,971 | 73,310 | ||||||
Accumulated earnings | 117,809 | 98,975 | ||||||
Accumulated other comprehensive loss | (2,121 | ) | (995 | ) | ||||
Total stockholders’ equity | 195,890 | 171,520 | ||||||
Total liabilities and stockholders’ equity | $ | 549,298 | $ | 483,495 | ||||
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ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
Three Months Ended December 31, | Years Ended December 31, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Revenue | ||||||||||||||||
Revenue from receivable portfolios, net | $ | 47,902 | $ | 55,813 | $ | 240,802 | $ | 241,402 | ||||||||
Servicing fees and other related revenue | 4,040 | 2,904 | 15,087 | 12,609 | ||||||||||||
Total revenue | 51,942 | 58,717 | 255,889 | 254,011 | ||||||||||||
Operating expenses | ||||||||||||||||
Salaries and employee benefits (excluding stock-based compensation expense) | 12,617 | 13,765 | 58,120 | 64,153 | ||||||||||||
Stock-based compensation expense | 382 | 1,001 | 3,564 | 4,287 | ||||||||||||
Cost of legal collections | 26,662 | 18,987 | 96,187 | 78,636 | ||||||||||||
Other operating expenses | 5,996 | 4,563 | 23,652 | 21,533 | ||||||||||||
Collection agency commissions | 2,310 | 3,772 | 13,118 | 12,411 | ||||||||||||
General and administrative expenses | 5,540 | 4,513 | 19,445 | 17,478 | ||||||||||||
Depreciation and amortization | 652 | 810 | 2,814 | 3,351 | ||||||||||||
Total operating expenses | 54,159 | 47,411 | 216,900 | 201,849 | ||||||||||||
Income before other (expense) income and income taxes | (2,217 | ) | 11,306 | 38,989 | 52,162 | |||||||||||
Other (expense) income | ||||||||||||||||
Interest expense | (4,220 | ) | (4,000 | ) | (15,629 | ) | (13,904 | ) | ||||||||
Contingent interest expense | — | — | — | (4,123 | ) | |||||||||||
Pay-off of future contingent interest | — | — | — | (11,733 | ) | |||||||||||
Gain on repurchase of convertible notes, net | 6,679 | — | 8,096 | — | ||||||||||||
Other income | 17 | 918 | 358 | 1,071 | ||||||||||||
Total other expense | 2,476 | (3,082 | ) | (7,175 | ) | (28,689 | ) | |||||||||
Income before income taxes | 259 | 8,224 | 31,814 | 23,473 | ||||||||||||
Provision for income taxes | (28 | ) | (3,376 | ) | (12,980 | ) | (8,431 | ) | ||||||||
Net income | $ | 231 | $ | 4,848 | $ | 18,834 | $ | 15,042 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 23,094 | 22,991 | 23,046 | 22,876 | ||||||||||||
Diluted | 23,632 | 23,466 | 23,577 | 23,386 | ||||||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.01 | $ | 0.21 | $ | 0.82 | $ | 0.66 | ||||||||
Diluted | $ | 0.01 | $ | 0.21 | $ | 0.80 | $ | 0.64 |
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ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(In Thousands)
Years Ended December 31, | ||||||||
2008 | 2007 | |||||||
Operating activities: | ||||||||
Net Income | $ | 18,834 | $ | 15,042 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 2,814 | 3,351 | ||||||
Amortization of loan costs | 1,377 | 1,219 | ||||||
Stock-based compensation expense | 3,564 | 4,287 | ||||||
Gain on repurchase of convertible notes, net | (8,096 | ) | — | |||||
Deferred income tax expense | 1,531 | 3,002 | ||||||
Other non-cash tax benefits, net | 3,075 | 2,145 | ||||||
Tax benefit from stock-based payment arrangements | — | (698 | ) | |||||
Provision for impairment on receivable portfolios, net | 41,400 | 11,230 | ||||||
Changes in operating assets and liabilities | ||||||||
Restricted cash | — | 4,660 | ||||||
Other assets | 4,135 | 545 | ||||||
Deferred court costs | (7,803 | ) | (9,599 | ) | ||||
Prepaid income tax | 2,411 | (6,619 | ) | |||||
Accrued profit sharing arrangement | — | (6,869 | ) | |||||
Deferred revenue and purchased service obligation | 1,305 | 1,108 | ||||||
Accounts payable and accrued liabilities | (1,476 | ) | (3,194 | ) | ||||
Net cash provided by operating activities | 63,071 | 19,610 | ||||||
Investing activities: | ||||||||
Cash paid for India membership interest | — | (2,250 | ) | |||||
Purchases of receivable portfolios, net of forward flow allocation | (224,717 | ) | (197,249 | ) | ||||
Collections applied to investment in receivable portfolios | 116,101 | 102,093 | ||||||
Proceeds from put-backs of receivable portfolios | 3,640 | 3,769 | ||||||
Purchases of property and equipment | (2,276 | ) | (1,422 | ) | ||||
Net cash used in investing activities | (107,252 | ) | (95,059 | ) | ||||
Financing activities: | ||||||||
Proceeds from notes payable and other borrowings | 108,000 | 121,000 | ||||||
Repayment of notes payable and other borrowings | (42,169 | ) | (48,500 | ) | ||||
Repurchase of convertible notes | (20,101 | ) | — | |||||
Proceeds from exercise of stock options | 23 | 348 | ||||||
Tax benefit from stock-based payment arrangements | — | 698 | ||||||
Proceeds from capital lease | 400 | — | ||||||
Repayment of capital lease obligations | (307 | ) | (212 | ) | ||||
Net cash provided by financing activities | 45,846 | 73,334 | ||||||
Net increase (decrease) in cash | 1,665 | (2,115 | ) | |||||
Cash and cash equivalents, beginning of period | 8,676 | 10,791 | ||||||
Cash and cash equivalents, end of period | $ | 10,341 | $ | 8,676 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 14,427 | $ | 35,707 | ||||
Cash paid for income taxes | $ | 5,301 | $ | 8,730 | ||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||
Fixed assets acquired through capital lease | $ | 1,602 | — | |||||
Allocation of forward flow asset to acquired receivable portfolios | $ | 5,561 | $ | 11,704 |
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ENCORE CAPITAL GROUP, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
Reconciliation of Adjusted EBITDA to GAAP Net Income and Operating Expenses, Excluding Stock-based Compensation
Expense and Bankruptcy Servicing Operating Expenses to GAAP Total Operating Expenses
(Unaudited, In Thousands)
Three Months Ended December 31, | Years Ended December 31, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
GAAP net income, as reported | $ | 231 | $ | 4,848 | $ | 18,834 | $ | 15,042 | ||||||||
Interest expense | 4,220 | 4,000 | 15,629 | 13,904 | ||||||||||||
Contingent interest expense | — | — | — | 4,123 | ||||||||||||
Pay-off of future contingent interest | — | — | — | 11,733 | ||||||||||||
Provision for income taxes | 28 | 3,376 | 12,980 | 8,431 | ||||||||||||
Depreciation and amortization | 652 | 810 | 2,814 | 3,351 | ||||||||||||
Amount applied to principal on receivable portfolios | 46,364 | 29,498 | 157,501 | 113,323 | ||||||||||||
Stock-based compensation expense | 382 | 1,001 | 3,564 | 4,287 | ||||||||||||
Adjusted EBITDA | $ | 51,877 | $ | 43,533 | $ | 211,322 | $ | 174,194 | ||||||||
GAAP total operating expenses, as reported | $ | 54,159 | $ | 47,411 | $ | 216,900 | $ | 201,849 | ||||||||
Stock-based compensation expense | (382 | ) | (1,001 | ) | (3,564 | ) | (4,287 | ) | ||||||||
Bankruptcy servicing operating expenses | (3,192 | ) | (3,076 | ) | (13,369 | ) | (14,801 | ) | ||||||||
Operating expenses, excluding stock-based compensation expense and bankruptcy servicing operating expenses | $ | 50,585 | $ | 43,334 | $ | 199,967 | $ | 182,761 | ||||||||
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