Delaware (State or Other Jurisdiction of Incorporation) | 000-26489 (Commission File Number) | 48-1090909 (IRS Employer Identification No.) |
3111 Camino Del Rio North, Suite 103, San Diego, California (Address of Principal Executive Offices) | 92108 (Zip Code) | |
(877) 445-4581 (Registrant’s telephone number, including area code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Exhibit Number | Description |
99.1 | Press release dated July 24, 2018 |
99.2 | Unaudited Pro Forma Condensed Consolidated Financial Information |
ENCORE CAPITAL GROUP, INC. | |
Date: July 30, 2018 | /s/ Jonathan C. Clark |
Jonathan C. Clark | |
Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit Number | Description |
99.1 | |
99.2 |
![]() | ![]() |
As Reported | Pro Forma Adjustments | Notes | Pro Forma Financial Statement | ||||||||||
Assets | |||||||||||||
Cash and cash equivalents | $ | 217,138 | $ | — | $ | 217,138 | |||||||
Investment in receivable portfolios, net | 3,024,141 | — | 3,024,141 | ||||||||||
Deferred court costs, net | 85,887 | — | 85,887 | ||||||||||
Property and equipment, net | 81,008 | — | 81,008 | ||||||||||
Other assets | 276,966 | 17,785 | (a) | 294,751 | |||||||||
Goodwill | 957,120 | — | 957,120 | ||||||||||
Total assets | $ | 4,642,260 | $ | 17,785 | $ | 4,660,045 | |||||||
Liabilities and Equity | |||||||||||||
Liabilities: | |||||||||||||
Accounts payable and accrued liabilities | $ | 244,948 | $ | — | $ | 244,948 | |||||||
Debt, net | 3,607,101 | 1,292 | (b) | 3,608,393 | |||||||||
Other liabilities | 33,187 | — | 33,187 | ||||||||||
Total liabilities | 3,885,236 | 1,292 | 3,886,528 | ||||||||||
Redeemable noncontrolling interest | 155,249 | (145,548 | ) | (c) | 9,701 | ||||||||
Equity: | |||||||||||||
Common stock, $.01 par value, 50,000 shares authorized, 25,912 shares issued and outstanding, actual, 30,818 shares issued and outstanding, adjusted | 259 | 49 | (d) | 308 | |||||||||
Additional paid-in capital | 45,906 | 162,860 | (e) | 208,766 | |||||||||
Accumulated earnings | 626,130 | (10,690 | ) | (f) | 615,440 | ||||||||
Accumulated other comprehensive loss | (61,463 | ) | — | (61,463 | ) | ||||||||
Total Encore Capital Group, Inc. stockholders’ equity | 610,832 | 152,219 | 763,051 | ||||||||||
Noncontrolling interest | (9,057 | ) | 9,822 | (c) | 765 | ||||||||
Total equity | 601,775 | 162,041 | 763,816 | ||||||||||
Total liabilities, redeemable equity and equity | $ | 4,642,260 | $ | 17,785 | $ | 4,660,045 |
As Reported | Pro Forma Adjustments | Notes | Pro Forma Financial Statement | ||||||||||
Revenues | |||||||||||||
Revenue from receivable portfolios | $ | 281,009 | $ | — | $ | 281,009 | |||||||
Other revenues | 35,968 | — | 35,968 | ||||||||||
Total revenues | 316,977 | — | 316,977 | ||||||||||
Allowance reversals on receivable portfolios, net | 9,811 | — | 9,811 | ||||||||||
Total revenues, adjusted by net allowances | 326,788 | — | 326,788 | ||||||||||
Operating expenses | |||||||||||||
Salaries and employee benefits | 89,259 | — | 89,259 | ||||||||||
Cost of legal collections | 53,855 | — | 53,855 | ||||||||||
Other operating expenses | 33,748 | — | 33,748 | ||||||||||
Collection agency commissions | 11,754 | — | 11,754 | ||||||||||
General and administrative expenses | 39,284 | — | 39,284 | ||||||||||
Depreciation and amortization | 10,436 | — | 10,436 | ||||||||||
Total operating expenses | 238,336 | — | 238,336 | ||||||||||
Income from operations | 88,452 | — | 88,452 | ||||||||||
Other (expense) income | |||||||||||||
Interest expense | (57,462 | ) | 3,706 | (g) | (53,756 | ) | |||||||
Other income | 2,193 | — | 2,193 | ||||||||||
Total other expense | (55,269 | ) | 3,706 | (51,563 | ) | ||||||||
Income before income taxes | 33,183 | 3,706 | 36,889 | ||||||||||
(Provision) benefit for income taxes | (9,470 | ) | 835 | (h) | (8,635 | ) | |||||||
Net income | 23,713 | 4,541 | 28,254 | ||||||||||
Net (income) loss attributable to noncontrolling interest | (1,886 | ) | 1,909 | (i) | 23 | ||||||||
Net income attributable to Encore Capital Group, Inc. stockholders | $ | 21,827 | $ | 6,450 | $ | 28,277 | |||||||
Earnings per share attributable to Encore Capital Group, Inc.: | |||||||||||||
Basic earnings per share | $ | 0.84 | $ | 0.91 | |||||||||
Diluted earnings per share | $ | 0.83 | $ | 0.90 | |||||||||
Weighted average shares outstanding: | |||||||||||||
Basic | 26,056 | 4,906 | 30,962 | ||||||||||
Diluted | 26,416 | 4,906 | 31,322 |
As Reported | Pro Forma Adjustments | Notes | Pro Forma Financial Statement | ||||||||||
Revenues | |||||||||||||
Revenue from receivable portfolios | $ | 1,053,373 | $ | — | $ | 1,053,373 | |||||||
Other revenues | 92,429 | — | 92,429 | ||||||||||
Total revenues | 1,145,802 | — | 1,145,802 | ||||||||||
Allowance reversals on receivable portfolios, net | 41,236 | — | 41,236 | ||||||||||
Total revenues, adjusted by net allowances | 1,187,038 | — | 1,187,038 | ||||||||||
Operating expenses | |||||||||||||
Salaries and employee benefits | 315,742 | — | 315,742 | ||||||||||
Cost of legal collections | 200,058 | — | 200,058 | ||||||||||
Other operating expenses | 104,938 | — | 104,938 | ||||||||||
Collection agency commissions | 43,703 | — | 43,703 | ||||||||||
General and administrative expenses | 158,080 | — | 158,080 | ||||||||||
Depreciation and amortization | 39,977 | — | 39,977 | ||||||||||
Total operating expenses | 862,498 | — | 862,498 | ||||||||||
Income from operations | 324,540 | — | 324,540 | ||||||||||
Other (expense) income | |||||||||||||
Interest expense | (204,161 | ) | 10,417 | (g) | (193,744 | ) | |||||||
Other income | 10,847 | — | 10,847 | ||||||||||
Total other expense | (193,314 | ) | 10,417 | (182,897 | ) | ||||||||
Income from continuing operations before income taxes | 131,226 | 10,417 | 141,643 | ||||||||||
(Provision) benefit for income taxes | (52,049 | ) | 3,755 | (h) | (48,294 | ) | |||||||
Income from continuing operations | 79,177 | 14,172 | 93,349 | ||||||||||
Loss from discontinued operations, net of tax | (199 | ) | — | (199 | ) | ||||||||
Net income | 78,978 | 14,172 | 93,150 | ||||||||||
Net loss attributable to noncontrolling interest | 4,250 | 1,923 | (i) | 6,173 | |||||||||
Net income attributable to Encore Capital Group, Inc. stockholders | $ | 83,228 | $ | 16,095 | $ | 99,323 | |||||||
Amounts attributable to Encore Capital Group, Inc.: | |||||||||||||
Income from continuing operations | $ | 83,427 | $ | 16,095 | $ | 99,522 | |||||||
Loss from discontinued operations, net of tax | (199 | ) | — | (199 | ) | ||||||||
Net income | $ | 83,228 | $ | 16,095 | $ | 99,323 | |||||||
Earnings per share attributable to Encore Capital Group, Inc.: | |||||||||||||
Basic earnings (loss) per share from: | |||||||||||||
Continuing operations | $ | 3.21 | $ | 3.22 | |||||||||
Discontinued operations | $ | (0.01 | ) | $ | — | ||||||||
Net basic earnings per share | $ | 3.20 | $ | 3.22 | |||||||||
Diluted earnings (loss) per share from: | |||||||||||||
Diluted income from continuing operations per share | $ | 3.16 | $ | 3.18 | |||||||||
Discontinued operations | $ | (0.01 | ) | $ | (0.01 | ) | |||||||
Net diluted earnings per share | $ | 3.15 | $ | 3.17 | |||||||||
Weighted average shares outstanding: | |||||||||||||
Basic | 25,972 | 4,906 | 30,878 | ||||||||||
Diluted | 26,405 | 4,906 | 31,311 |
Cash consideration | $ | 234,101 | |
Stock consideration | 180,559 | ||
Purchase price | 414,660 | ||
Less: PEC acquired at the Transaction | (271,284 | ) | |
Consideration transferred to acquire remaining equity interest | 143,376 | ||
Less: Carrying value of redeemable noncontrolling interest | (145,548 | ) | |
Less: Carrying value of noncontrolling interest | 9,822 | ||
Estimated direct transaction costs | 10,000 | ||
Net adjustment to equity | $ | 17,650 |
Three months ended March 31, 2018 | Year ended December 31, 2017 | ||||||||||||||||||||||
$ | Per Diluted Share— Accounting | Per Diluted Share— Economic | $ | Per Diluted Share— Accounting | Per Diluted Share— Economic | ||||||||||||||||||
GAAP net income from continuing operations attributable to Encore, as reported | $ | 21,827 | $ | 0.83 | $ | 0.83 | $ | 83,427 | $ | 3.16 | $ | 3.18 | |||||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Convertible notes non-cash interest and issuance cost amortization | 3,035 | 0.12 | 0.12 | 12,353 | 0.47 | 0.47 | |||||||||||||||||
Acquisition, integration and restructuring related expenses(1) | 572 | 0.02 | 0.02 | 16,628 | 0.63 | 0.63 | |||||||||||||||||
Net gain on fair value adjustments to contingent considerations(2) | (2,274 | ) | (0.09 | ) | (0.09 | ) | (2,822 | ) | (0.11 | ) | (0.11 | ) | |||||||||||
Amortization of certain acquired intangible assets(3) | 2,068 | 0.08 | 0.08 | 3,561 | 0.13 | 0.14 | |||||||||||||||||
Expenses related to Cabot IPO(4) | 2,984 | 0.11 | 0.11 | 15,339 | 0.58 | 0.58 | |||||||||||||||||
Income tax effect of the adjustments(5) | (810 | ) | (0.03 | ) | (0.03 | ) | (7,936 | ) | (0.30 | ) | (0.30 | ) | |||||||||||
Adjustments attributable to noncontrolling interest(6) | (1,558 | ) | (0.06 | ) | (0.06 | ) | (15,720 | ) | (0.60 | ) | (0.60 | ) | |||||||||||
Impact from tax reform(7) | — | — | — | 1,182 | 0.05 | 0.05 | |||||||||||||||||
Non-GAAP adjusted income from continuing operations attributable to Encore | $ | 25,844 | $ | 0.98 | $ | 0.98 | $ | 106,012 | $ | 4.01 | $ | 4.04 | |||||||||||
Pro Forma non-GAAP adjustments: | |||||||||||||||||||||||
Total Pro Forma adjustments(8) | 6,451 | 16,095 | |||||||||||||||||||||
Additional convertible notes non-cash interest and issuance cost amortization, net of tax(9) | 648 | 2,158 | |||||||||||||||||||||
Non-GAAP adjustments allocated to Cabot’s noncontrolling interest holders(10) | 1,558 | 15,335 | |||||||||||||||||||||
Pro Forma non-GAAP adjusted income from continuing operations attributable to Encore | $ | 34,501 | $ | 1.10 | $ | 1.10 | $ | 139,600 | $ | 4.46 | $ | 4.48 | |||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||||
Diluted | 26,416 | 26,405 | |||||||||||||||||||||
Economic | 26,416 | 26,227 | |||||||||||||||||||||
Pro Forma diluted | 31,322 | 31,311 | |||||||||||||||||||||
Pro Forma economic | 31,322 | 31,133 |
(1) | 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. |
(2) | 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. |
(3) | 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. |
(4) | Amount represents expenses related to our pursuit of the initial public offering by our subsidiary Cabot. We adjust for this amount because we believe these expenses were not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results. |
(5) | 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. |
(6) | 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. |
(7) | As a result of the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) change, we incurred a net additional tax expense of approximately $1.2 million during the year ended December 31, 2017. We believe the Tax Reform Act related expenses are not indicative of our ongoing operations, therefore adjustment for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results. |
(8) | Represents the total pro forma adjustments relating to the Pro Forma Transactions during the respective periods as illustrated in the “Unaudited pro forma condensed consolidated financial information” section. |
(9) | Represents the estimated non-cash interest and issuance cost amortization relating to the $172.5 million principal amount of the 2023 Notes, net of applicable tax provision. |
(10) | The pro forma non-GAAP adjusted income from continuing operations attributable to Encore and pro forma non-GAAP Economic EPS give effect to the Pro Forma Transactions as if they had occurred on January 1, 2017. As discussed in (6) above, the initial adjustments allocated to noncontrolling shareholders included adjustments allocated to the noncontrolling shareholders of Cabot, therefore, we added back such adjustments as if we owned 100% of Cabot during the periods presented. |
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