Exhibit 99.1
For Immediate Release
Encore Capital Group Announces Record Net Income for Second Quarter 2010 and
Increased Revolving Credit Facility
SAN DIEGO, August 2, 2010 /PRNewswire-FirstCall/ — Encore Capital Group, Inc. (Nasdaq: ECPG), a leading distressed consumer debt management company, today reported consolidated financial results for the second quarter ended June 30, 2010.
For the second quarter of 2010:
| • | Gross collections were $156.8 million, a 28% increase over the $122.4 million in the same period of the prior year. |
| • | Investment in receivable portfolios was $83.3 million, to purchase $2.2 billion in face value of debt, compared to $82.0 million, to purchase $1.9 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 $45.5 million as of June 30, 2010. Total debt, consisting of the revolving credit facility, convertible senior notes and capital lease obligations, was $328.7 million as of June 30, 2010, an increase of 8% from $303.1 million as of December 31, 2009. |
| • | Revenue from receivable portfolios, net was $91.8 million, a 24% increase over the $74.0 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, was 60%, compared to 64% in the same period of the prior year. |
| • | Revenue from bankruptcy servicing was $4.4 million, an 8% increase over the $4.1 million in the same period of the prior year. |
| • | Total operating expenses were $72.8 million, a 15% increase over the $63.5 million in the same period of the prior year. Operating expense (excluding stock-based compensation expense and bankruptcy servicing operating expenses) per dollar collected decreased to 43.4% compared to 48.3% 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 $90.5 million, a 40% increase over the $64.7 million in the same period of the prior year. |
| • | Total interest expense was $4.9 million, compared to $4.0 million in the same period of the prior year. |
| • | Net income was $11.7 million or $0.47 per fully diluted share, compared to net income of $6.6 million or $0.28 per fully diluted share in the same period of the prior year. |
| • | Tangible book value per share, computed by dividing total stockholders’ equity less goodwill and identifiable intangible assets by the number of diluted shares outstanding, was $10.23 as of June 30, 2010, an 11% increase over $9.23 as of December 31, 2009. |
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Additional Financial Information:
Certain events affected the comparability of 2010 versus 2009 quarterly results, as outlined below. For a more detailed comparison of 2010 versus 2009 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, 2010.
| • | In the second quarter of 2010, the Company recorded net portfolio allowances of $2.8 million, compared to $4.6 million in the same period of the prior year. |
| • | In the second quarter of 2010, the Company expensed $11.4 million in upfront court costs, compared to $10.6 million in the same period of the prior year. |
| • | In the second quarter of 2009, the Company repurchased $2.9 million principal amount of its outstanding convertible senior notes, for a total price of $2.4 million, plus accrued interest. These repurchases resulted in a gain of $0.2 million or $0.01 per fully diluted share. |
Increased Revolving Credit Facility
Separately, the Company announced today that on July 15, 2010, it obtained an additional $33.0 million in commitments from lenders and exercised a portion of its $100.0 million accordion feature. The Company thereby increased its revolving credit facility to $360.5 million from $327.5 million, leaving $67.0 million available under the accordion feature. Upon exercise of the accordion, there was $78.5 million in available capacity under the facility, subject to borrowing base and applicable debt covenants.
Conference Call and Webcast
The Company will hold a conference call 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 listen to the live conference call via the Internet.
To hear the presentation, log on at the Investor Relations page of the Company’s website 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.
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
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approximate cash costs to cash collections for the debt purchasing business in the periods presented. The Company has included information concerning tangible book value per share because management believes that this metric is a meaningful measure that reflects the equity deployed in the business. 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 and total stockholders’ equity as an indicator of Encore Capital Group’s financial condition. Adjusted EBITDA, operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses, and tangible book value per share have not 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, a reconciliation of operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses to the GAAP measure total operating expenses, and a reconciliation of tangible book value per share to the GAAP measure total stockholders’ equity 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
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ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)
| June 30, 2010 | December 31, 2009 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 10,402 | $ | 8,388 | ||||
Accounts receivable, net | 2,478 | 3,134 | ||||||
Investment in receivable portfolios, net | 566,815 | 526,877 | ||||||
Deferred court costs | 25,954 | 25,957 | ||||||
Property and equipment, net | 11,234 | 9,427 | ||||||
Prepaid income tax | 2,039 | — | ||||||
Other assets | 9,793 | 4,252 | ||||||
Goodwill | 15,985 | 15,985 | ||||||
Identifiable intangible assets, net | 943 | 1,139 | ||||||
Total assets | $ | 645,643 | $ | 595,159 | ||||
Liabilities and stockholders’ equity | ||||||||
Liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 22,028 | $ | 21,815 | ||||
Income taxes payable | — | 2,681 | ||||||
Deferred tax liabilities, net | 16,958 | 16,980 | ||||||
Deferred revenue | 4,808 | 5,481 | ||||||
Debt | 328,656 | 303,075 | ||||||
Other liabilities | 1,066 | 2,036 | ||||||
Total liabilities | 373,516 | 352,068 | ||||||
Commitments and contingencies and subsequent events | ||||||||
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, 23,785 shares and 23,359 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively | 238 | 234 | ||||||
Additional paid-in capital | 110,117 | 104,261 | ||||||
Accumulated earnings | 162,433 | 139,842 | ||||||
Accumulated other comprehensive loss | (661 | ) | (1,246 | ) | ||||
Total stockholders’ equity | 272,127 | 243,091 | ||||||
Total liabilities and stockholders’ equity | $ | 645,643 | $ | 595,159 | ||||
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ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue | ||||||||||||||||
Revenue from receivable portfolios, net | $ | 91,845 | $ | 73,965 | $ | 174,752 | $ | 146,240 | ||||||||
Servicing fees and other related revenue | 4,386 | 4,070 | 8,817 | 8,241 | ||||||||||||
Total revenue | 96,231 | 78,035 | 183,569 | 154,481 | ||||||||||||
Operating expenses | ||||||||||||||||
Salaries and employee benefits (excluding stock-based compensation expense) | 16,484 | 14,762 | 31,969 | 28,719 | ||||||||||||
Stock-based compensation expense | 1,446 | 994 | 3,207 | 2,074 | ||||||||||||
Cost of legal collections | 31,235 | 28,626 | 57,668 | 58,573 | ||||||||||||
Other operating expenses | 9,027 | 6,598 | 18,141 | 12,578 | ||||||||||||
Collection agency commissions | 6,413 | 4,797 | 11,709 | 7,688 | ||||||||||||
General and administrative expenses | 7,425 | 7,097 | 14,304 | 12,794 | ||||||||||||
Depreciation and amortization | 752 | 620 | 1,425 | 1,243 | ||||||||||||
Total operating expenses | 72,782 | 63,494 | 138,423 | 123,669 | ||||||||||||
Income before other (expense) income and income taxes | 23,449 | 14,541 | 45,146 | 30,812 | ||||||||||||
Other (expense) income | ||||||||||||||||
Interest expense | (4,880 | ) | (3,958 | ) | (9,418 | ) | (8,231 | ) | ||||||||
Gain on repurchase of convertible notes, net | — | 215 | — | 3,268 | ||||||||||||
Other (expense) income | (90 | ) | 9 | 102 | (72 | ) | ||||||||||
Total other expense | (4,970 | ) | (3,734 | ) | (9,316 | ) | (5,035 | ) | ||||||||
Income before income taxes | 18,479 | 10,807 | 35,830 | 25,777 | ||||||||||||
Provision for income taxes | (6,749 | ) | (4,166 | ) | (13,239 | ) | (10,139 | ) | ||||||||
Net income | $ | 11,730 | $ | 6,641 | $ | 22,591 | $ | 15,638 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 23,713 | 23,168 | 23,673 | 23,145 | ||||||||||||
Diluted | 24,958 | 23,971 | 24,897 | 23,811 | ||||||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.49 | $ | 0.29 | $ | 0.95 | $ | 0.68 | ||||||||
Diluted | $ | 0.47 | $ | 0.28 | $ | 0.91 | $ | 0.66 | ||||||||
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ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
| Six Months Ended June 30, | ||||||||
| 2010 | 2009 | |||||||
Operating activities: | ||||||||
Net income | $ | 22,591 | $ | 15,638 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,425 | 1,243 | ||||||
Amortization of loan costs and debt discount | 2,194 | 2,160 | ||||||
Stock-based compensation expense | 3,207 | 2,074 | ||||||
Gain on repurchase of convertible notes, net | — | (3,268 | ) | |||||
Deferred income tax expense | (22 | ) | 360 | |||||
Excess tax benefit from stock-based payment arrangements | (1,813 | ) | (28 | ) | ||||
Provision for allowances on receivable portfolios, net | 10,720 | 9,991 | ||||||
Changes in operating assets and liabilities | ||||||||
Other assets | 39 | (2,456 | ) | |||||
Deferred court costs | 3 | (1,425 | ) | |||||
Prepaid income tax and income taxes payable | (3,027 | ) | 8,577 | |||||
Deferred revenue | (673 | ) | 197 | |||||
Accounts payable, accrued liabilities and other liabilities | (1,072 | ) | 611 | |||||
Net cash provided by operating activities | 33,572 | 33,674 | ||||||
Investing activities: | ||||||||
Purchases of receivable portfolios | (164,968 | ) | (137,946 | ) | ||||
Collections applied to investment in receivable portfolios, net | 112,446 | 81,163 | ||||||
Proceeds from put-backs of receivable portfolios | 1,864 | 1,430 | ||||||
Purchases of property and equipment | (1,647 | ) | (1,400 | ) | ||||
Net cash used in investing activities | (52,305 | ) | (56,753 | ) | ||||
Financing activities: | ||||||||
Payment of loan costs | (4,660 | ) | — | |||||
Proceeds from revolving credit facility | 53,000 | 62,500 | ||||||
Repayment of revolving credit facility | (31,000 | ) | (21,500 | ) | ||||
Repurchase of convertible notes | — | (22,262 | ) | |||||
Proceeds from net settlement of certain call options | 524 | — | ||||||
Proceeds from exercise of stock options | 1,688 | 29 | ||||||
Excess tax benefit from stock-based payment arrangements | 1,813 | 28 | ||||||
Repayment of capital lease obligations | (618 | ) | (122 | ) | ||||
Net cash provided by financing activities | 20,747 | 18,673 | ||||||
Net increase (decrease) in cash and cash equivalents | 2,014 | (4,406 | ) | |||||
Cash and cash equivalents, beginning of period | 8,388 | 10,341 | ||||||
Cash and cash equivalents, end of period | $ | 10,402 | $ | 5,935 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 6,994 | $ | 6,435 | ||||
Cash paid for income taxes | $ | 16,544 | $ | 1,626 | ||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||
Fixed assets acquired through capital lease | $ | 1,389 | $ | — | ||||
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ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted EBITDA to GAAP Net Income, Operating Expenses, Excluding Stock-based
Compensation Expense and Bankruptcy Servicing Operating Expenses to GAAP Total Operating Expenses, and
Tangible Book Value Per Share to GAAP Total Stockholders’ Equity
(In Thousands, Except Per Share Amounts)
(Unaudited)
| Three Months Ended June 30, | ||||||
| 2010 | 2009 | |||||
GAAP net income, as reported | $ | 11,730 | $ | 6,641 | ||
Interest expense | 4,880 | 3,958 | ||||
Provision for income taxes | 6,749 | 4,166 | ||||
Depreciation and amortization | 752 | 620 | ||||
Amount applied to principal on receivable portfolios | 64,901 | 48,303 | ||||
Stock-based compensation expense | 1,446 | 994 | ||||
Adjusted EBITDA | $ | 90,458 | $ | 64,682 | ||
| Three Months Ended June 30, | ||||||||
| 2010 | 2009 | |||||||
GAAP total operating expenses, as reported | $ | 72,782 | $ | 63,494 | ||||
Stock-based compensation expense | (1,446 | ) | (994 | ) | ||||
Bankruptcy servicing operating expenses | (3,300 | ) | (3,454 | ) | ||||
Operating expenses, excluding stock-based compensation expense and bankruptcy servicing operating expenses | $ | 68,036 | $ | 59,046 | ||||
| As of June 30, 2010 | As of December 31, 2009 | |||||||
GAAP total stockholders’ equity, as reported | $ | 272,127 | $ | 243,091 | ||||
Goodwill | (15,985 | ) | (15,985 | ) | ||||
Identifiable intangible assets, net | (943 | ) | (1,139 | ) | ||||
Tangible book value | $ | 255,199 | $ | 225,967 | ||||
Diluted shares outstanding | 24,958 | 24,484 | ||||||
Tangible book value per share | $ | 10.23 | $ | 9.23 | ||||